The situation in India has changed since last one year with respect to its twin deficits- fiscal deficit and current account deficit, the rupee has strengthen and this has led to credibility returning to the Indian market, says John Woods, head- fixed income, Citi Investment.
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Below is the edited transcript of the interview to CNBC-TV18.
Menaka: Of what you have seen of the numbers presented by the Indian finance minister, is there something that you would be willing to swallow and agree with or do you think that he has made some very aggressive projections for the year to come?
A: I think he is between a rock and a hard place. He needs to communicate fiscal prudence to the market and by that I mean in particular the international market if flows are to stabilise and indeed accelerate in the coming quarters.
Looking at this from an external fund manager perspective, it is fair to say that we have seen some stability in the currency and I think the market is giving the benefit of the doubt to the new central bank governor.
We have seen a narrowing in the current account deficit (CAD) which is obviously a positive given the extent which deficit economies are being targeted by the market. The fiscal deficit is now being looked at quite aggressively.
If he is able to execute on these targets, clearly it is a positive. However, the market is really quite skeptical, particularly, India's two structural deficits. And I think, it may want to wait and see a little before it begins to give the benefit of the doubt.
Menaka: There are two ways to look at this. I know it depends on who forms the next government here in India, but even if it were the best government do you think it would be able to meet these targets as set out by Chidambaram today? Hence the question I am asking you is does the India story at this point in time inspire more confidence in you than it did lets say a year ago?
A: It certainly has inspired more confidence in me since May last year rather than a year ago. Then ofcourse India was very much in crosshairs with its fiscal deficit, its CAD and the subsequent selling of the INR.
I think there has been a degree of credibility returning at the fundamental level in the way that the market sees India. There is certainly a degree of wait-and-watch until the new government comes in because it is very much down to the incoming government as to whether they wish to or they have the ability and willingness to execute on these targets.
That is certainly the view being espoused by the rating agencies – who are waiting until after the elections before they decide whether or not to upgrade the call on India.
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