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Posted by: Deepa Vasudevan on Sun, May 13th, 2018

2018 not likely to be 2013 for Indian Markets

Emerging markets have fallen out of favour. Investors have been pulling out from emerging market debt for some time now, and the month of May’18 also saw equity outflows. The strengthening dollar has led to a depreciation in most emerging market currencies. Countries with large current account deficits and/or dollar liabilities are the worst impacted: Argentina has sought IMF aid after a currency crisis, and the Turkish lira could be approaching that stage.

As interest rates in the US and the developed world go up, will it be 2013 again, when just the hint of a rate hike pushed India to the brink of an external crisis? The usual crisis triggers are all in place: rising crude oil prices, increasing fiscal deficit, rising short term dollar debt, FPI outflows, political risk in a pre-election year and more than 5% depreciation in the rupee-dollar exchange rate.

Table 1: The Crisis Triggers




International Price of Crude 

( Price/bbl May 13/May 18)

$ 102.5

$ 75.3

Crude Imports

(Actual for FY13, estimated for FY18)

$164 billion

$100 billion

Fiscal Deficit (% to GDP)

Actual for FY13, budgeted for FY19

4.9 %

3.5 %

Foreign Portfolio Flows

(Apr-May 2013/2018)

$3.9 billion

- $4.2 billion

Short-Term Debt to External Debt:  By Residual Maturity

(Mar 13/Dec 17)

By Original Maturity


42.4 %



 Sources: RBI, PPAC, Union Budget, Ministry of Finance 

But 2018 is not 2013, at least not yet. The economy is far more resilient than it was five years ago. First, inflation is under 6%, and inflation expectations are stable. RBI has established its credentials as a strong anti-inflation Central Bank and shown that it can, if necessary, sacrifice growth to curb prices. Second, India’s $400 billion store of forex reserves provides adequate protection against forex turbulence. More importantly, RBI does not seem to be in a hurry to defend the rupee against the dollar, preferring instead to keep markets calm and allow a gentle depreciation. This attitude of non-panic is working out well for the markets. Third, the improvement in direct and indirect tax collections are very positive for the government’s fiscal position. If this uptrend continues, it means that robust tax revenues, rather than market borrowing, will increasingly be used to fund desperately-needed infrastructure spending. Fourth, while portfolio investment is negative, over $37.5 billion has come in via the foreign direct investment route in 2017-18 - a trend that signals the continuing confidence of long term investors in the country’s growth potential. Finally, exporters have been complaining about an overvalued exchange rate, so a depreciating rupee could give a jumpstart to export growth.


There are more positives in India’s growth story today than in 2013. Then it was one of the Fragile Five; today it is among the highest growing economies in the world. Its economic fragility has not gone away, but markets are choosing to focus, instead, on its underlying potential.   Until that sentiment prevails, 2013 is not likely to be repeated. 


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