Indian macros: Need an accommodative policy on monetary and fiscal fronts, says SBI's Ghosh

Tanvee Gupta Jain, chief India Economist at UBS Securities and Soumya Kanti Ghosh, group chief economic advisor at SBI discussed at length a couple of macro points in an interview with CNBC-TV18.

When asked about expectations from RBI, Ghosh said, “You can see some liquidity measures coming through very soon and the fact is that the situation on the ground is deteriorating fast.”

“My sense is that there is an outside chance of the RBI moving before the Monetary Policy Committee (MPC) policy. I am not sure whether they will go with a rate cut or liquidity auctions, but to me there is now an outside chance of the central bank moving because situations are deteriorating every passing day. So that cannot be ruled out fully,” he added.

When asked about excise duty hike on fuel, he said, “I am not sure it is the right approach because increasing the excise duty is perhaps an ad hoc measure, but there are 2 things. The first thing is that if that increased revenue which is coming to the government is used by the government for any fiscal package, I am fine with it but if it goes to adjusting the fiscal deficit, I am not sure whether that is the correct option as of now because we need a coordinated policy action both on the monetary side and on the fiscal side. An empirical evidence, international evidence across countries that fiscal is now the preferred option in a situation when a pandemic has broken out.”

When asked about her view on the currency, Gupta Jain said that equity fund outflows could be a further drag on the currency. “However, looking at the current account balance and external account, we are more of the view that behind this near term weakness – because right now the view is that whether COVID-19 outbreak and the extent of impact it can have on India, for example we are looking at a scenario of 4.6 percent GDP growth for FY21 in an intermediate pandemic case and the growth could slow as low as 4 percent in worst case pandemic case,” she added.

“Therefore, in a scenario where the growth can further slowdown because of COVID-19 outbreak there could be near-term impact on currency but if I look from 6-9 month point of view, the fundamentals on the currency are still very stable. We are still looking at 72/USD for year-end FY21 forecast even though we do see that uncertainty is going to remain high. So, near-term weakness in INR is going to continue at least till the time we see more clarity on COVID-19 outbreak,” Gupta Jain added.