How resilient is India to episodes of capital outflow? - ICICI Bank : Treasury Research

The recent outflow of capital from EMs has raised questions of how well equipped these nations are, particularly India, to withstand similar episodes in the future.

The sell-off has sparked comparisons with the wave of capital outflow that triggered crises like the East Asian (1997) one. However, our analysis shows that any such comparison is unfair.

The recent turbulence is far from assuming the proportions of a full-blown financial crisis, though it does raise questions about how resilient the Indian economy is to financial risks.

As a case study, on comparing India today with East Asian economies then, we find that India fares relatively better on several macroeconomic parameters and hence does not face the risk of slipping into any crisis.

However, on analysing the recent trends in some of India's external vulnerability indicators, we find that there appears to be some deterioration.

We therefore conclude that while the Indian economy is highly unlikely to experience a financial crisis of the order of the East Asian one, its relative resilience to financial risks should not be taken for granted.

Source : Equity Bulls

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