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Thursday, August 15, 2013

More measures needed to overcome BoP challenges: HSBC

More measures from RBI and Government are needed to overcome the balance of payment challenges and rupee depreciation, says a report by HSBC.

To contain the sharp depreciation in the rupee, which has plunged 13 per cent since May, and contain the current account deficit, the Reserve Bank of India resorted to currency stabilisation measures and the Government took steps such as making gold imports costlier.

Moreover, a new set of measures focusing on curbing oil, gold and non-essential imports and opening up external fund raising were taken. The rupee slipped to 61.80 to a dollar earlier in the month.

“Will this be enough to fix the leaks? We do not think so,” HSBC Chief Economist for India and ASEAN Leif Lybecker Eskesen said in a research note.

Eskesen further noted that “ultimately structural reform implementation is the solution, but short term there is a need to rely on RBI and more plumbing measures.”

These recent steps would certainly help narrow the current account deficit and the June/July trade numbers already suggest that some of the previous steps taken to curb gold imports are helping, but these measures likely need to be complemented by additional policy steps, HSBC said.

CAD, the difference between inflow and outflow of foreign currency, was $ 88.2 billion, or 4.8 per cent of GDP, in 2012-13. A high CAD impacts the value of the currency, which in turn makes imports expensive and adds to the fiscal deficit.

According to HSBC, it will now be important to step up implementation of the measures announced, including getting actual FDI in and breaking ground on investment projects expedited through CCI.

“This would help lift investments, supply-led growth, contain the CAD and help raise confidence domestically and abroad. Moreover, if the Government is able to push through bigger reform measures such as the pending insurance and GST bill, that would also help lift confidence,” it said.

HSBC said, “Unfortunately, the impact from structural reforms is not likely to kick in near term and the chances of getting big bang reforms through on this side of the elections are small. The policy makers will, therefore, have to rely on short-term measures for the time being.”

Source: thehindubusinessline


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