The past five years have been a remarkably crisis-free period for the global economy. There have been no painful calamities of the type that hit Asia in 1997 and Russia in 1998. But there is no guarantee that the next few years will be equally tranquil, especially given the credit crisis in the West, the overheated economy in China, rising global inflation and the mess in the US. So, it makes sense to evaluate how the Indian economy can handle global stress in the months ahead.
The latest data there shows that India has a current account deficit of 2.4% of GDP and a fiscal deficit of 3.1% of GDP. Add the two. You get a macroeconomic misery index of minus 5.5. That’s outsized. And this number will grow in the months ahead as oil prices rise, the import bill balloons and the government continues to issue off-budget oil bonds to subsidize consumers.
How does India compare with the rest of the world? The US does far worse, with an index value of minus 7. Most other countries in the euro area, too, have worse combinations of fiscal and current account balances.
So, India does not do too badly compared with the rich nations. But it’s a completely different story when we turn our attention to our peers in the global arena. China and Russia both have fiscal and current account surpluses. Their index values are well into positive territory. Brazil has modest deficits that add up to minus 2.6. Malaysia and Thailand have fiscal deficits that are close to Indian levels, but these are balanced by strong current account surpluses. Actually, as far as emerging market economies are concerned, only Pakistan and Egypt are worse off than we are.
India’s fiscal and current account deficits are widening to 1991 levels. Most other Asian economies are better off
Is India slouching to a repeat of the 1991 crisis? The possibility cannot be dismissed.
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