Friday, December 22, 2023

Talking about the best. Ignoring advice.

 "The International Monetary Fund (IMF) warned...that India's general government debt could exceed 100 percent of gross domestic product (GDP) in the medium term. It also cautioned that long-term debt sustainability risks are high due to the significant investment required to meet India's climate change mitigation levels." BS. "The country's total debt, or total outstanding bonds which are being traded in the market, rose to $2.47 trillion (Rs 205 trillion) in the September quarter according to a report." "The central government's debt stood at $1.34 trillion, or Rs 161.1 trillion." India's "Real GDP or GDP at Constant (2011-12) Prices in the year 2022-23 is estimated to attain a level of Rs 160.06 trillion" while "Nominal GDP or GDP at Current Prices in the year 2022-23 is estimated to attain a level of Rs 272.41 trillion." pib. gov.in. So, India's total debt is about 75% of nominal GDP. "The finance ministry...said that any interpretation that the IMF report implies that general government debt would exceed 100% of GDP in the medium term is misconstrued." The IMF is taking the worst-case scenario and since most of the debt is in Indian rupees it is not a problem. First, even if the debt is in rupees it's not free. The higher the debt, the higher the total interest payment. Second, the government should "Expect the best. Prepare for the worst. Capitalize on what comes." Zig Ziglar. "The IMF noted the rupee-dollar exchange rate moved within a narrow range during December 2022 and October 2023, suggesting that foreign exchange intervention (FXI) by the central bank likely exceeded levels necessary to address disorderly market conditions. The Fund reclassified India's de facto exchange rate regime to 'stabilised arrangement' from 'floating'." BS. "Rebutting the IMF's observation the RBI said that India's exchange rate remained 'market determined' and it did not target a particular value for the currency," as "a sharp depreciation will fuel inflation as imports, including edible oil and petroleum, become more expensive. On the other hand, a sharp appreciation will hurt exports." TOI. India's trade deficit came down to $20 billion per month from $22.1 billion, trade deficit in the three quarters to June 2023 was $27.3 billion from $53.5 billion in the previous year and foreign portfolio investment was around $45 billion though foreign direct investment (FDI) fell by $22 billion, wrote Madan Sabnavis. Therefore, the IMF is wrong. Perhaps, the IMF is politely hinting that the US interest rate has gone up from 0% to 5.25%-5.50% (Frobes), while the RBI has hiked its policy rate from 4% to 6.50%  (Forbes), thus narrowing the gap with the US, but the rupee has barely budged against the dollar from 81.62 in 2022 to 83.38 (Forbes). It is at 83.33 this morning. xe.com. The foreign exchange reserves have been up and down. Forbes. Whereas the inflation rate in the US in 2022 rose to a high of 9.1% in June and average inflation to 8.0% (USIC), it has been consistently lower than the average inflation in India (RI) except for 2022 when the average inflation in India was a tad lower at 6.7%. The US inflation slowed to 3.1% in November (ET), whereas India's CPI inflation rose to 5.5% (ET). The IMF probably feels that tolerating a high inflation rate to inflate the nominal GDP while using hot money FPI flows to support the rupee is unwise. But, hey, the general election is in April-May 2024. wikipedia. After that, who cares?       

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