India’s Economic Survey for 2021-22 suggests that even as central banks across the world, particularly the US Federal Reserve, have started rolling back pandemic-era reforms, the Indian economy this time around is far better prepared to handle external shocks bound to be created by tightening of the monetary policy stance.
Since the taper episode of 2013, India’s salient external sector sustainability indicators improved, the survey says. The conventional metric of import cover in terms of number of months of imports is more than double since the episode of taper tantrum
India’s Economic Survey for 2021-22 suggests that even as central banks across the world, particularly the US Federal Reserve, have started rolling back pandemic-era reforms, the Indian economy this time around is far better prepared to handle external shocks bound to be created by tightening of the monetary policy stance.
The first Taper Tantrum occurred in 2013 when the US Fed announced plans to taper its quantitative easing policy which it put in place following the Great Financial Crisis in 2007-08. This rollback resulted in a panic pull out of funds from emerging markets including India.
India saw portfolio outflows aggregating to ₹79,375 crore from capital markets, including ₹19,165 crore from equity markets and ₹60,210 crore from debt markets during May 23-August 30, 2013, the survey says.
But the survey shows that India’s external sector this time around is well supported by strong exports, capital inflows, low current account deficit and external financing requirements and high foreign exchange reserves.
Agencies
Comparison of Macroeconomic Indicators during Global Financial Crisis, Taper Tantrum and COVID-19 (Source: Eco Survey 2021-22)
Now that roll-back of pandemic era has commenced, stock markets across the world have seen a sea of red over the past two weeks, including India. Overall, India has been resilient so far on the face of the current taper, the survey says.
Back In 2013, rating firm Morgan Stanley had coined the term ‘Fragile Five’ in reference to the emerging market economies of Brazil, India, Indonesia, South Africa, and Turkey.
“While acknowledging India’s transformation from being among the Fragile Five countries in the wake of the earlier episode to the 4th largest forex reserve holder during the current episode, Indian economy stands guard with an added advantage of plenty of policy room for manoeuvring as the process of normalisation of monetary policy by systematically important central banks takes hold,” the survey says.
Agencies