Reality Check, Markets! 2013 VS Today.

Remember 2013 ? Federal Reserve started its bond tapering and our markets fell viciously, like every other market in the world. Change in monetary policy stances, In accordance with a likely tapering of bond purchases & fears of inflation, is beginning to strain the international finance markets. Bond yields have risen sharply in both Advance & Emerging Market Economies. China’s Evergrande group fiasco continues to sour the mood.

The US dollar has strengthened sharply while Emerging Market currencies have weakened since early September, with capital outflows in recent weeks.

Is it different today, are we better off than 2013?

Let us examine some key data points & evaluate various facts. In 2013, we were a part of the “fragile five”. Our Current Account Deficit was high. It had touched 4.8%. As on 31st March 2021, it has ended in a modest surplus of 0.9% of GDP (Gross domestic product) .This surely is very heartening, Today GDP is fully financed by stable flows & hence there is no pressure on rupee.

Although fiscal deficit is high , it is not much of a concern today. While the huge foreign exchange reserves cannot protect the country from shocks, it would definitely help in keeping order. In FY21, India added over $100 billion to its forex reserves, which are still growing in FY22 so far & are at $637.5 billion today. This is more than double the level in 2013 when it was $292 billion, despite desperate measures taken by RBI to attract inflows.

 

Markets Become Volatile, If There Is Dollar Outflow.

In such a scenario RBI may enter the forex markets to contain the volatility and may not use any monetary policy instruments, as were used earlier. Such a huge & qualitative shift in policy mindset & pattern.

As an economy we are in a much healthier position then what we were in 2013.

 

Look At Some Of These Data Points

 

• PMI (Purchase Manager’s Index) is higher in September, than in August’21Service sector continues to expand
• CPI (Consumer Price Index) inflation is trending down & is firmly within RBI’s target zone of 2-6%
• WPI (Wholesale Price Index) is still high but the direction of change has been down
• GST Collections are robust.
• Exports have crossed the $30 billion mark for seventh straight month.
• Cement production is up.
• Our growth has been forecasted at 9.5% by both RBI & IMF.

 

All high frequency indicators point to gathering economic momentum. Credit growth & rising energy prices are the only worries, at this point in time.

 

Summing up, today our economy is on a very sound footing and definitely in a lot better position than where we were in 2013.Total insulation from global currents is a delusion. But presently both GOI & RBI seems to be working in tandem and this will help minimize the impact….The elephant, has started to dance!