Projecting an 8 per cent growth for the current fiscal, rating agency Fitch today said India is less vulnerable to risks from capital flight, on account of of drop in oil prices and the government's reform agenda. India had previously been clubbed with Brazil, Indonesia, South Africa and Turkey for being the most at risk of capital outflows following US Federal Reserve's proposed unwinding of the monetary stimulus.
"Brazil, India, Indonesia, South Africa and Turkey - commonly referred to as the 'Fragile Five' in 2013 - stood out at the time with the risk from capital flight resulting in currency volatility and widening credit spreads," it said.
On India, it said: "The government's broad-based reforms agenda, introduced following the 2014 general election, could transform the country's business environment and investment climate." It forecast real GDP growth at 8 per cent in 2015-16, up from 7.4 per cent in the previous year "although achieving higher real GDP growth depends on implementation".
The new monetary policy framework agreement based on inflation seems to indicate the government's and Reserve Bank of India's resolve to structurally lower inflation and may encourage investment, it said. India, it added, will benefit from much stronger external balances. "The current account deficit (CAD), at 1.2 per cent of GDP in FY15, is substantially lower than those of the other four economies," the agency pointed out.
With India dependent on import for about 79 per cent of its oil requirements, a 39 per cent drop in oil prices in the past year has kept a lid on inflation and helped narrow its CAD. Foreign exchange reserves have soared more than USD 35 billion to USD 341 billion. Gross external debt at 23 per cent of GDP at end of 2013 is also below median of its peers. "A large net commodity importer, India also benefits disproportionately from the sharp fall in materials and oil prices since mid-2014," it said. Several large emerging markets remain vulnerable to US monetary tightening two years after the "Taper Tantrum" caused a sharp rise in emerging market credit spreads and currency depreciation.
"Vulnerability is high in South Africa and Turkey. External risks have moderated in India and, to a lesser extent, Indonesia. Brazil has been slower to embark on macro-economic adjustment, but its external buffers are strong," it added.