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Last updated: 10 Mar, 2020  

Yes.9.thmb.jpg Yes, more challenges for Indian economy

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Bikky Khosla | 10 Mar, 2020

Global stock markets tumbled on Monday and this bloodbath can be attributed to the persistent concerns of the Corona Virus epidemic and the crash in the crude oil markets as Saudi Arabia had stunned the world by its decision to raise its production significantly after the collapse of OPEC-Russia talks on an output cut deal. The Indian stock markets felt the heat as well, registering on Monday its biggest single-day fall in its history as it closed 1,941 points lower.

At the same time, with the energy markets going into a free fall, the question has come to the fore: what effects it could have on the Indian economy. Some experts are quick enough to point out that the energy market crash is coming to India's advantage. According to an estimate a one dollar fall in crude oil price results in reducing the country's import bill by almost Rs 2,900 crore, and if crude price remains low for most parts of 2020, our import bill could reach its all-time low in many years.

Meanwhile, the ongoing Yes Bank crisis is unfortunate. RBI last week imposed a moratorium on the capital-starved bank and capped withdrawals at Rs. 50,000 per account. The announcement was then followed by a bailout proposal by the SBI. While the fall of Yes Bank shows again how fragile Indian’s financial sector is, the bailout -- though seems unavoidable to preserve the integrity of the sector – just looks like use of public resources to bailout a failed private bank.

Thus, the Government now, besides the Corona virus threat coupled with falling markets, and despite a likely lower oil import bill, has more problems at hand – fixing the banking and financial system. In last few months, two banks and a non-bank lender were placed under RBI moratorium. Some other players are also in trouble. The Indian economy has not faced a major financial system panic for decades, and now any such possibility must be nipped in the bud.

I invite your opinions.

 
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