India’s external debt stood at $496 billion for first half ended September 2017. This is over 5% higher than the fiscal year ending March. This can be largely attributed to aggressive investment by FPIs in debt securities. Out of the total external debt, long term debt accounted for 81% of the overall debt with short term debt accounting for the balance. Government debt accounted for just 22% while non-government debt accounted for 78% of this outstanding debt. The only worry in case of dollar-denominated debt is that the dollar could get stronger in the coming year due to Fed rate hikes.
Even as the government is struggling with falling GST numbers in the last couple of months, it has managed to collect nearly 80% of its targeted indirect taxes by November this fiscal year. Against a full year target of Rs.9.27 trillion, the government has already collected Rs.7.35 trillion. Half of these collections came from GST in the last 5 months while the other half was collected as excise, customs and service tax prior to July. Direct tax mop-ups were much lower at just 66% of the full-year target as calculated till the middle of December.
Former RBI Deputy Governor, Mr. R Gandhi, has opined that banning Bitcoins may not be the answer to addressing the risk of crypto currencies. According to Gandhi, there was no clear empirical evidence to prove that it was causing any systemic risk. The finance ministry had recently issue a warning about the heightened risk of these crypto currencies. In fact, Bitcoin has had a meteoric rise in 2017 gaining over 7 times since the beginning of the year despite all the gyrations in price movement. Globally, there are banks JPM that have dismissed Bitcoins, while Goldman is setting up a crypto trading desk.
SBI Chairman, Rajnish Kumar, is confident that a good number of stressed accounts will get automatically resolved in the first half of the year. According to Mr. Kumar, if the promoters are willing to settle at a reasonable level and if there are quality assets in the balance sheet, then the resolution should be entirely possible. Recently, RCOM managed to exit the SDR with banks and signed a full sell-out deal with Reliance Jio. The whole purpose of pushing through with the IBC was to ensure that the stressed problems of Indian banking system is addressed on top priority.
India’s fiscal deficit for the fiscal year 2017-18 has already touched 112% of its full year target in the first 8 months itself. In the previous year, the government had just about touched 85% of the full year target in the first 8 months. It now appears to be quite clear that the government looks set to breach its 3.2% fiscal deficit target for the year. Also the target of 3% for next year looks quite difficult at this point of time. The problem got highlighted after the central government decided to borrow an additional Rs.50,000 crore in the last quarter through dated securities as well as an additional Rs.23,000 crore through treasury bills. India’s adherence to fiscal discipline was one of the main reasons for Moody’s upgrading India’s rating by one notch. Rating agencies take FRBM targets quite seriously.
As the 10 year bond yields touched a high over 7.39%, the government decided to cancel part of its bond sale tranche. In fact, bond yields had been on a rise even since the US Fed hinted at 4 rate hikes in 2018 and the RBI almost hinted at the end of the rate cut cycle. The yields were pushed up further by the government’s steeper borrowing program. Of course, in the immediate aftermath of the government decision to cancel the bond auctions, the bond yields did ease. Additionally, tightening liquidity conditions have also been responsible for the sharp spike in bond yields.
