Reprieve To Rupee Bond Markets Is Short Term
Indian Express
The rupee has recovered to 94.4 to the US dollar, from an all-time-low of 96.6 on May 20. Over this period, 10-year Indian government bond yields, too, have softened from over 7.1 per cent to below 6.
8 per cent. Brent crude prices closed on Friday at $72.6 per barrel, having risen as high as $126.4 in end-April. India’s latest urea import contracts have been at $444.9-449.3 per tonne, as against $935-959 in April. Foreign portfolio investors (FPI) have started putting money again in India, investing nearly $5.2 billion into debt so far in June, compared to $291 million, minus 1.2 billion and minus $926 million in the preceding three months. All these are suggestive of the Indian economy returning to the pre-war situation, with an easing of tensions in West Asia and the associated supply shocks.
Simply put, the reprieve to the rupee and bond markets is short-term at best. As a large lower middle-income emerging economy, India should be attracting foreign investment more in the form of equity than debt. That is conditional upon investor confidence, both domestic and foreign, in the country’s growth story as well as macroeconomic stability. All the more reason for policymakers to double down on domestic reforms — economic, legal and institutional — even amid global uncertainty and fiscal consolidation in order to reduce the general government debt-GDP ratio to 60 per cent, from the current not-so-sustainable 80 per cent levels. The task is cut out, with or without the impact of the Iran conflict and El Niño.