Know why India is well prepared to deal with US rate hike than peers

Zee Media Bureau

New Delhi: There are unlikely to be any capital outflows from India because of the Fed rate hike, analyst said. The US Federal Reserve had last night hiked interest rates by 0.25 percent for the first time in about a decade, signalling that the US economy is strengthening.

Also Watch:

The US central bank has said it is likely to proceed gradually in normalising the interest rates, although future policy actions will depend on how the economy evolves relative to its objectives of maximum employment and a two percent inflation.

Here are the key reasons why India is well prepared to deal with Fed rate hike:

-India with a fortress balance sheet, sound fiscal management and and strong GDP growth is very well-equipped to deal with any volatility that may arise from a gradual interest rate hike by the US Federal Reserve.

-The country's less dependence on exports and improved external balances make it better placed than many of its peers.

-India's favourable economic growth outlook makes India relatively attractive for foreign investors.

-India's external balances have significantly improved since mid-2013, with foreign exchange reserves rising by USD 65 billion to USD 353 billion as of November 2015, and the narrowing of the current account deficit.

-India is also less dependent than several of its peers on commodity exports and has thus not been negatively affected by
the global rout in commodity prices, and also only a small part of India's sovereign debt is held by foreigners or denominated in foreign currency.

-We have to keep in mind the fact that India's import bill is substantially lower, of course, we are benefiting out of
substantially low crude prices. So, therefore, one would not expect substantial outflows.

-There is an overall macro economic stability and CAD and fiscal deficit are also under control. This year the government is committed to maintain 3.9 percent fiscal deficit notwithstanding additional expenditure which has been taken as a part of the supplementary demands.

With Agency Inputs