India's twin deficits make it second most risky emerging market: KKR

India's high fiscal and current account deficit, which have led global rating agencies issue downgrade warnings, have made the country second most risky among emerging markets after South Africa, said private equity major KKR on Tuesday.

A PTI report quoted KKR as saying "Our emerging market framework takes the view of avoiding twin-deficits countries at this point."

Even as India's current account deficit has of late started easing from all-time high of 4.8 per cent of GDP in FY13, the fiscal deficit continues to be a concern for policymakers. The FM has vowed to contain the fiscal deficit at 4.8 per cent of GDP in this fiscal, but experts believe that government may overshoot the target as it has already exhausted 94 per cent of its target by November.

Meanwhile, the Current Account Deficit (CAD), which led Indian rupee to depreciate sharply in the current fiscal, has started easing. It stood at 1.2 per cent of GDP in Q2 FY14 as against 4.9 per cent in Q1 FY14.

However, KKR said that "countries with sizable or growing twin-deficits will continue to see their currencies and CDS (credit default swaps) under pressure in 2014 as Fed tapering gains momentum."

"India must now deal more forcefully with deteriorating loan quality that has previously been listed as merely 'restructured'," it added.

Dion Global Solutions Ltd.

Story first published: Wednesday, January 15, 2014, 9:10 [IST]
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