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India will be resilient to global volatility. Marie Diron of Moody’s tells what drives the show?

Marie Diron, managing director at Moody's Investors Ser..

Marie Diron, managing director at Moody's Investors Service, in an interaction with ETNOW shares her views on India's macros, impact of higher oil prices and why consumer spending will remain robust. Edited excerpts –

ET Now: You have highlighted three concerns – higher oil prices, rising financial market stress in emerging markets and also the trade tensions between the US and China. Could you tell us what is your outlook on these concerns and do you see further escalation of all these challenges?
Marie Diron:
We think different economies have different exposure and the ones with the risk are those countries that rely on external financing. We have seen that in market movements of some of the G-20 countries like Argentina and Turkey, which reflect some of the vulnerabilities, some of the reliance on external financing that these economies have.

In Asia Pacific, interestingly, we think the reliance on external financing is less. In case of India, it is not an economy that relies on external financing. The country's financing is sought domestically so that provides some shelter, some buffer, against these type of market movements and so we think that overall, the Indian economy will be resilient through a period of global financial market volatility.

As regards the tensions between the US and China on trade, we think that this is an ongoing affair but the discussions will probably last for some more meetings and the risks there are two-fold. One is that this uncertainty about potential outcomes will start undermining investments globally, not only in China and the US but also in other economies. Two, if indeed, some measures were to be implemented that impede the trade flows then it would be negative for trade reliant economies in Asia. We think that this is really a downside risk. It is not our baseline at the moment and we will continue to monitor the negotiations.

ET Now: What is the level of prices that you are assuming for oil for global growth as well as for India. With oil at $75 what is the level of prices you are comfortable, specifically for the Indian market?
Marie Diron:
Oil price will impact in different ways; one is that the extent that it passed through to the consumer prices it potentially raises inflation and India is an importer of energy and that could have a negative impact on purchasing power. We have factored in some of that on the basis of recent developments. Overall, we expect consumer spending to remain robust helped by a relatively favourable monsoon as well as the minimum support prices that were announced in the budget. They should help rural consumption, in particular.

Oil prices also have an impact on Indias balance of payments and India imports energy. So, with a higher oil bill Indias trade balance moves towards larger deficit. There again, we have factored that in and we do now expect somewhat wider current account deficit (CAD) than previously projected around 2.5 per cent of GDP for the year, which still remains a lot narrower than we saw in 2013 when India was identified as one of the most vulnerable emerging markets. The current account deficits were running at around 4-5 per cent of the GDP, so we do think that some structural change, some long-lasting change have taken place. So, impact of higher oil prices on India will be lesser than in 2013.

ET Now: What is your view on the Indian macros and how you are seeing them improve? We are expecting the Q4 and FY18 GDP as well as fiscal deficit data for India, what are your expectations and what are some important factors that you would like to keep an eye on?
Marie Diron:
We look at the monetary policy with a lens of how effective it has been in its objective. We feel it's objective is to deliver stable and moderate inflation and so far we have assessed that the RBI is broadly meeting this objective. We have seen inflation coming down over time and it can go up in certain periods of higher oil prices. That is what we would expect for India. But overall, what matters to India for medium-term is moderate and stable inflation and that we think remains.

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