INSUBCONTINENT EXCLUSIVE:
Among currency, current account deficit and fiscal deficit, it may be worthwhile in the shorter term to focus on fiscal deficit.
From a
currency perspective, the rupee may just be correcting to its fundamental level after a period of overvaluation
In fact, the rupee seems to be more or less at its fundamental level at this stage
It can overshoot its fundamental level on heightened concerns but that may be the appropriate reason and time for RBI and government to
There may not be a need to take any extraordinary measures to support rupee at the current juncture.
The government and RBI may want to keep
There are potential risks to the macro position based on further weakness in sentiment for emerging markets from possible escalation in
China-US trade issues with both imposing tariffs on mutual additional imports, as also potential increase in crude oil prices based on
higher than expected cut in Iran oil exports following US sanctions.
In the immediate term, it may be more important to focus on containing
any fiscal slippage as it may result in further higher bond yields in the economy thereby affecting growth
Bond yields have already jumped anticipating additional borrowing along with concerns on liquidity and rates hikes
GST revenues to date are also below budget estimates and the monthly run rate expected from here on looks challenging
Further excise cuts on diesel and gas to mitigate impact on households and domestic inflation may put further pressure on the fiscal.
The
government may want to explore options to shore up its revenues in order to prepare for any exigency
It may be difficult to manage CAD in the short term without drastic measures such as raising import tariffs significantly on certain
It may be more feasible to raise revenues through accelerated divestments, higher GST on products such as gold which will also help contain
CAD and higher import tariffs on certain products and components for consumer items which may force companies to explore domestic production
