Tap Diaspora Dollars... Now

It’s the best way to manage forex volatility. NRIs have reposed trust in India earlier: in 1998, 2000 & 2013

- Somnath Mukherjee

India’s sweet spot or merely a delayed moment of reckoning? Depending on who you ask, answers vary. British economist Joan Robinson’s iconic observation – “Whatever you can rightly say about India, the opposite is also true” – is never passé in an analysis of (and about) India.

The positive side posited around an again-fashionable “India decoupling” narrative, is shown up by a stock market which had held up spectacularly well in a year when most major markets have had big meltdowns. The negative clouds too are well identified.

They centre around a perpetual feature of India’s economy – a substantial Current Account Deficit (CAD). Coupled with weak investor sentiments globally constraining capital flows, a large CAD (expected to be 2.5-3% of GDP this year) presents formidable short-term challenges – on inflation, interest rates and finally income growth.

Forex worries

A global dollar shortage, sparked off by the US Federal Reserve unwinding years of easy monetary policy, has swept through the world’s currencies. In its recent meeting, the Fed hiked its benchmark Fed Funds rates by another 0.75%, as well as indicating a higher terminal rate. The Indian rupee has been relatively stable, but not unscathed. The pressure’s building up though.