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Letter to BS: Trump-disruption era of uncertain duration is upon us

The banking sector and bond market reforms were soft-pedalled when global economy was in better shape

Business Standard 

Govt's borrowings increasingly being used to pay interest on past loans

This refers to “Develop corporate bond market sustainably” (August 20). The Indian economy is slowing and the central bank is cutting interest rates. But the cost of long-term money is refusing to budge. What could be troubling the market is the unknown quantum of public spending via borrowings, that are but sovereign liabilities, beyond the Rs 7 trillion fiscal gap. The FCI alone has borrowed over Rs 2 trillion, most of it from non-market sources as EPF, postal savings, stressing the need for deepening of the Indian corporate bond market to meet the funding requirement of the infrastructure sector, particularly by insurance companies and pension funds.

Despite interest rate cuts, the 10-year Indian government bond yield was tracking at 7.4 per cent till recently, only to slip to sub-7 per cent level now, as falling crude oil and slowing economic growth feeds speculation on monetary easing by the RBI. The banking sector and bond market reforms were soft-pedalled when global economy was in better shape. But the Trump-disruption era of uncertain duration is upon us and it will be brave to even contemplate them.

R Narayanan, Navi, Mumbai


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First Published: Tue, August 20 2019. 21:10 IST
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