How do India’s macroeconomic numbers stack up against its rival emerging markets? Do they put India at a significant advantage or disadvantage when it comes to attracting capital flows? India’s much-discussed growth collapse, as shown in Table 1, has been seen in most emerging markets except Indonesia. Some, like Brazil, have seen a decline even more precipitous.
India’s consumer price inflation, however, is significantly higher, as Table 2 makes clear. With the exception of China, where controls of one sort or another have kept inflation below 2 per cent, all other major emerging markets have managed to narrow their inflation numbers to a band between 4.4 per cent and 5.2 per cent. India’s central bank has, thus, been particularly tough. Brazil’s policy rate, which was much higher than India’s, has been sharply loosened following its growth collapse, as Table 3 shows, but the RBI has not been so generous. However, as Table 4 shows, the benchmark lending rate for banks is much higher in India. Other emerging markets, except Brazil, have three-month deposit rates below 5.5 per cent.
On the other hand, over the past few years, India seems to have largely controlled its debt-to-GDP ratio, as Table 5 demonstrates. It is still among the highest, but not so much of an outlier as it was earlier; China, in particular, has rapidly built up debt in its post-crisis stimulus. This is in spite of the fact that India’s fiscal deficit is in the dangerous territory, as Table 6 serves to show.(Click here for tables)
What does this mean for returns for foreign investors, particularly in the stock market? Well, volatility in most emerging-market share indices has sharply reduced, as Table 7 shows. And, the Sensex has delivered solid returns since the beginning of this year — which means foreign funds may still find India attractive.
