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.