US Fed rate hike to have minimal impact on India: CEA

Deepak Kumar \ The Dollar Business 

    After the US Federal Reserve raised the interest rate by 0.25%, Indian industry analysts said the decision will not have major impact on the country’s economy. “We are really well cushioned on the micro-economic side. Inflation is coming down, our fiscal deficit situation is very good and our external situation is also very robust. I think, for all these reasons, the impact on India should be really minimal,” Chief Economic Advisor Arvind Subramanian said. In a historic move on Wednesday, the US Federal Reserve raised the interest rate by a quarter percentage point for the first time since 2006. The US central bank's policy-setting committee increased the target range for the federal funds rate between 0.25% and 0.50%. The decision was taken after the US Federal committee assessed the overall economic outlook and the effect of a raised interest rate on America’s future economic consequences. The increase in interest rate reflects that the country’s economy has been on a crucial path of recovery after the 2007-2009 financial crisis. However, some industry analysts argue that the move shows America’s unpredictable economic scenarios, and the decision could have been taken at a later stage when the US economy revival would have been more promising. “It is a matter of survival for the US economy now as it is currently in a bad shape. The US is highly dependent on corporate sector, and it has not been able to embrace the SME sector.  Therefore, any country, which is following the US economy, will need to restructure their domestic policies,” Confederation of All India Traders (CAIT) National Secretary General Praveen Khandelwal told the Dollar Business. Many analysts have predicted that the rate hike would benefit those developing nations that have been competing with India in terms of their global exports share. “The increase in the interest rates would strengthen dollar further, exerting pressure on currencies of the emerging economies. While rupee may also find itself weakening, what is worrying for Indian exporters is the fact that the erosion in the currencies of the competing economies like Indonesia, the Philippines, Brazil, China, and Russia would be much sharper making their exports gain extra competitive edge,” said T S Bhasin, Chairman, Engineering Export Promotion Council (EEPC). The US is a producing economy whereas India is a consuming economy.  If the Indian economy is threatened by the external forces, the daily cash transaction here fills the gap. Indian economy remains vibrant always, not static as the US. But, we still need to structure our economy to an extant where card and banking bills are incentivised,”  Khandelwal said. The decision comes at a time, when world’s economy, especially of the developing countries including China, India and Brazil, have been, at large, going through a stagnation due to falling global commodity prices and a slowdown in the Chinese economy.  

December 17, 2015  | 06:20pm IST