Skip to main content

Uncertain times ahead, EMs lack safety net: RBI governor Shaktikanta Das

The general government debt of AEs as a group has surpassed 100 per cent of gross domestic product (GDP), whereas the fiscal space is also constrained in many of these countries The global economy is moving into a “new and unsettling phase” where “solutions are turning more difficult to come by” in an environment of stressed trade negotiations, rising geopolitical confrontation, and limited policy space and high debt levels in several economies, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Friday. This has a negative connotation for emerging markets (EMs), as these are building up excessive leverage because of the low interest rates in the advanced economies (AEs). This is especially true in the absence of a strong global safety net such as currency swap arrangements between the AEs and the EMs. The general government debt of AEs as a group has surpassed 100 per cent of gross domestic product (GDP), whereas the fiscal space is also constrained in many of these countries, the governor said at the launch of a book (India’s Relations with the International Monetary Fund) in New Delhi. “The global order today faces several challenges that will test the skills of the international organisations as well as those of national monetary and fiscal authorities,” the governor stated, adding,  “International coordination has become somewhat weaker in the very recent years. Many AEs have been pursuing low interest rate policies for long without perhaps adequate recognition of their adverse impacts.”

The RBI governor rued the fact that at the global level, $13 trillion of debt, or nearly a third of the bonds issued by advanced economies, was trading at negative yields. Equity premium has crossed 4 per cent, which is 1 standard deviation higher than its long-term average. “Return to lower interest rates in AEs poses challenges as leverage has already built up in the EMs and the needed deleveraging is not complete in many European economies,” the governor said. Amid low global interest rates, total credit to the non-financial sector in the EMs went up from 107.2 per cent of GDP at the end of 2008 to 194. 4 per cent of GDP by March 2018, before it dropped to 183.2 per cent at the end of 2018. Net private capital flows to EMs in the form of direct and portfolio investments also nearly doubled in the post-crisis period, according to the RBI governor. This has posed risks to some EMs. Some of these risks have surfaced in the form of weak bank/non-bank balance sheets and some remain latent and can surface, especially when the global interest rate cycles turn decisively,” Das said in his speech. "The world will be looking to the IMF to suggest dependable solutions. The EMs on their part need to follow policies that promote macroeconomic and financial stability, while focusing on growth,” he said.

EMs no longer face only balance of payments crisis, but the nature of the shock has changed to a full-blown crisis. After the financial crisis of 2008-09, and quantitative easing thereof, the EMs and their markets have received huge funds because of a global spillover, but this has “amplified both sudden surges and sudden stops or reversals of capital flows”, he said. Here, the governor stressed the need for a robust global safety net. “The existing state of financial safety nets, regional or multilateral, falls grossly short of providing the necessary buffers against such turbulence. Moreover, access to swaps from systemically important central banks is not available to the EMs. For many EMs, high fluctuations in currency movements have pronounced macroeconomic consequences,” the RBI governor said.

Business Standard, 27th July 2019

Comments

Popular posts from this blog

New income tax slab and rates for new tax regime FY 2023-24 (AY 2024-25) announced in Budget 2023

  Basic exemption limit has been hiked to Rs.3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023. Further, the income tax slabs in the new tax regime has been changed. According to the announcement, 5 income tax slabs will be there in FY 2023-24, from 6 income tax slabs currently. A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes   The income tax slabs under the new income tax regime will now be as follows: Rs 0 to Rs 3 lakh - 0% tax rate Rs 3 lakh to 6 lakh - 5% Rs 6 lakh to 9 lakh - 10% Rs 9 lakh to Rs 12 lakh - 15% Rs 12 lakh to Rs 15 lakh - 20% Above Rs 15 lakh - 30%   The revised Income tax slabs under new tax regime for FY 2023-24 (AY 2024-25)   Income tax slabs under new tax regime Income tax rates under new tax regime O to Rs 3 lakh 0 Rs 3 lakh to Rs 6 lakh 5% Rs 6

Jaitley plans to cut MSME tax rate to 25%

Income tax for companies with annual turnover up to ?50 crore has been reduced to 25% from 30% in order to make Micro, Small and Medium Enterprises (MSME) companies more viable and also to encourage firms to migrate to a company format. This move will benefit 96% or 6.67 lakh of the 6.94 lakh companies filing returns of lower taxation and make MSME sector more competitive as compared with large companies. However, bigger firms have shown their disappointment since the proposal for reducing tax rates was to make Indian firms competitive globally and it is the large firms that are competing globally. The Finance Minister foregone revenue estimate of Rs 7,200 crore per annum for this for this measure. Besides, the Finance Minister refrained from removing or reducing Minimum Alternate Tax (MAT), a popular demand from India Inc., but provided a higher period of 15 years for carry forward of future credit claims, instead of the existing 10-year period. “It is not practical to rem

Don't forget to verify your income tax return in August: Here's the process

  An ITR return needs to be verified within 120 days of filing of tax return. Now that you have filed your income tax return, remember to verify it because your return filing process is not complete unless you do so. The CBDT has reduced the time limit of ITR verification to 30 days (from 120 days) from the date of return submission. The new rule is applicable for the returns filed online on or after 1st August 2022. E-verification is the most convenient and instant method for verifying your ITR. However, if you prefer not to e-verify, you have the option to verify it by sending a physical copy of the ITR-V. Taxpayers who filed returns by July 31, 2023 but forget to verify their tax returns, will get the following email from the tax department, as per ClearTax. If your ITR is not verified within 30 days of e-filing, it will be considered invalid, and may be liable to pay a Late Fee. Aadhaar OTP | EVC through bank account | EVC through Demat account | Sending duly signed ITR-V through s