India is among the 11 emerging markets (EMs) that have jumped on the QE bandwagon
Anup Roy |
Last Updated at April 15, 2021 01:41 IST
A quantitative easing (QE) programme by the Reserve Bank of India (RBI) may not go well with the country’s fundamentals, even as it bought Rs 3.13 trillion of debt from the secondary market in the last fiscal year and committed to Rs 1 trillion of bond purchase in the first quarter.
India is among the 11 emerging markets (EMs) that have jumped on the QE bandwagon. But it has one of the highest public debts and weakest debt affordability, global rating agency Moody’s said on Wednesday.
Chile, Colombia, Croatia, Ghana, Hungary, India, Indonesia, the Philippines, Poland, South Africa and Turkey have recently announced their own versions of QE, so far the reserve of developed economies. But the fundamentals of these economies vary widely.
While most of the 11 EM central banks score well in Moody’s assessment of macroeconomic stability, “with the exception of Chile, most of the 11 EMs have weak government effectiveness, suggesting potential risks executing fiscal reforms or consolidation plans”.
“Debt affordability varies widely, with Ghana and India (Baa3 negative) weakest,” Moody’s said.
Also, “across the 11 EMs, India, South Africa and Ghana have the highest public debt and weakest debt affordability”.
A number of EMs score quite weakly on government effectiveness (close to 0), suggesting they may find it more difficult to implement fiscal reforms or consolidation. India’s score at 0.17, per Moody’s methodology, lands it at the seventh spot in the list of 11.
Echoing Moody’s finding, UBS economist Tanvee Gupta Jain pointed out India’s public debt (as a percentage of GDP) has risen from 72 per cent in FY20 to 89 per cent in FY21.
“Our estimates indicate that nominal GDP needs to grow at least 10 per cent YoY to help stabilise public debt levels at the current high levels before bringing it down,” she said.
Among global EMs, India will have the third-highest public debt to GDP ratio, after Argentina and Brazil, in 2021. “We believe the key for debt sustainability is the ability and speed with which the government can deliver on promises made in the Budget, specifically with regard to aggressive divestment/privatisation targets and also higher public capex spending to help support nominal GDP growth,” she said.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.