How are you reading into the knock which the rupee is consistently taking and how are you analysing the overall factors behind it?
I would say that this is not too surprising and more than the RBI nudge, I would assign a very significant weightage to the overall Covid infection situation. If someone wants to take a step back to understand how things have been playing on the external front, a few months back there was a period when India was enjoying a rare period of surplus both on the current account and capital account. Given the movement in commodity prices in 2021, there will be a period when there will be the usual pattern of current accounts deficits.
The rupee in the near term will be linked more with the capital account flows — so equity market flows or bond flows. Now interestingly, while there was current and capital accounts surplus, rupee did not appreciate that much in 2020 but it appreciated quite a bit towards the fag end of FY21 when two things happened. One, India started outperforming other countries very significantly on the Covid front and the government gave a promised boost to growth.
Now two months down the line, the Covid situation in India has worsened quite a bit all of a sudden and that is why there’s a lot of question marks on the future growth prospect all of a sudden. In that kind of a situation, the capital account flows and equity market flows are very clearly posing questions and there are new challenges as well. The rupee has adjusted to a new level over the course of the last few days.
ET Now: How are you analysing the impact of a possible lockdown in Maharashtra and stricter norms in five to six states which are seeing a surge in Covid cases? What will be the overall macro impact on GDP growth going forward?
Siddhartha Sanyal: The Covid numbers are really very high but one ray of hope is we are better prepared at various levels. Human bodies are biologically better prepared to deal with the virus. The medical system is better prepared and policy makers and businesses are better prepared compared to where we stood about a year back.
There is some buffer but the way the infection has spread and the numbers have multiplied over the course of the last couple of weeks, it is really really a concern and we need to stay watchful. Even though the numbers are spreading across the country, to some extent it is still concentrated in a few states. But unfortunately those states contribute quite a bit of our overall GDP and that is why that remains a concern.
So overall I would be very watchful about the level of lockdown, fresh infections as well as better preparedness at various levels. There is one positive factor in 2021 compared to 2020 but if the disease starts spreading significantly in other parts of the country then one would have to really look at the growth forecast etc. very significantly.
One particular factor is we might not see that in Q1 just in terms of numbers because we enjoy a massively positive base effect and that is why the numbers for Q1 of FY22 will still be pretty decent but one would have to be very watchful about how things pan out on an incremental basis or beyond Q1 of FY22.
