Indian economy is fragile: US official

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India was identified as one of five fragile economies that took strong policy response to stabilise foreign exchange markets. (Reuters) India was identified as one of five fragile economies that took strong policy response to stabilise foreign exchange markets. (Reuters)
SummaryUS official predicts an uncertain outlook for the Indian economy.

increase capital account openness, India saying, no, we can't do that because we would be very scared if the current account deficit were to rise beyond – 3 per cent was sort of the magic number that they had in mind at the time.

“But typically, they kept the current account deficit to, like, 1 or 2 per cent, at most,” he said on Wednesday.

Collyns, who was recently in the country, said India has gone through a tremendous boom of growth, building on their strengths.

“But they haven't dealt with a lot of the underlying structural problems, and they've allowed their macro framework to remain fairly weak,” he said.

“They have a very wide fiscal deficit. As long as you're growing fast, you can live with a wide fiscal deficit because you essentially absorb the debt by growing, but as growth has subsided, then you get more worried about the fiscal deficit.

So the combination of reforms, big fiscal deficit means that markets are worried. And India has come under pressure," Collyns said.

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