Monday, July 1, 2013

External Scenario Update: India

Courtesy Alex Etra, some updates on the external scenario over in India:

"Total external debt rose to 390 billion at March-end (21% of GDP), up from 376 billion in December and 345 billion in March 2012. Of particular concern is the rising share of short-term debt at residual maturity (44% of total) which comprises both short-term debt and long-term debt maturing in the next year. Combining the 172 billion in short-term debt at residual maturity and the expected CAD of about 100 billion provides a starker picture of the external financing requirement facing India over the next year (~13% of GDP)"

Furthermore,

"With 57% of total external debt denominated in dollars (~89 billion) and previous estimates that about 50% of companies’ foreign borrowing is unhedged, the 10% depreciation of INR over the last month will further add to the rollover risk this year"

There's pressure. The Fed's played it a bit wrong this time and shifts in flows have become a bit messy. As usual, while external scenarios don't factor into Fedspeak and Fedthought, that's where the major consequences are seen.

And I think the RBI's hands seem more tied than before. Any possible room has certainly got smaller and the transmission mechanism, in any case doesn't work too well (e.g: 100 bps of rate cuts in 2012-13 leading to 30 bps in bank lending rates?), not to forget that real deposit rates have been in negative territory for over a year approximately. Moreover, corporate and bank balance sheets are far from healthy and if anything at all, understated in terms of risk.

And you know what's worse? 
It's an election year.

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