India should take some one-time extraordinary measures to boost the country’s economy and to realize the vision of Prime Minister Narendra Modi to make India self-reliant and a global superpower.
We need to provide jobs to poor people and provide credit to farmers and small businesses without straining our internal resources too much. We don’t need to overburden our future generations with huge local debt when there is already a flood of global debt liquidity currently.
We are in the cusp of a new world order. Instead of defending an old order that is collapsing, we should focus on making the new world order just. We should reclaim our rightful place in the new world as an engine of future global growth, manufacturing and technological innovation.
We must use this once in a lifetime opportunity of excessive global liquidity sparked by a deluge in dollar supply amid excessive money printing by the US Fed and other central banks. We can take the following short term, one-time emergency measures to increase money supply in the domestic economy:
1) We have vast dollar reserves and we need to use it now more than ever. The price of crude oil has fallen 70% and WTI crude is unlikely to sustain above $30 for long. The best time to use our dollar reserves is now and we should pump the money into the local economy.
2) The Reserve Bank of India can stop buying dollars. The RBI does not need to defend the INR/USD exchange rate anymore in these extraordinary times. The US Fed’s pledge to provide unlimited stimulus will lead to humongous oversupply of dollar bonds and lack of appetite from big borrowers like China, Middle East and Asia will lead to a surge in US treasury yields and consequent weakening of the dollar over the next two years.
3) India should ease restrictions on external commercial borrowings (ECB) allowing all companies to freely borrow from the international markets if they can get it. At least RBI should relax ECB norms regarding end use, maximum pricing, tenor, etc. for loan and bond issuances. Anyways due diligence and risk management is the job of the international lender, not RBIs.
4) India can do a sovereign dollar bond issue to fund domestic infrastructure building. This can boost economy, create jobs and produce a virtuous consumption cycle.
5) India is going to be a superpower in the new emerging world order. India must negotiate a new, just Bretton Woods deal to reset all reserve and non-reserve currencies according to a nation’s size, demographics and future potential. The revaluation of currencies can be market driven and in proportion to the interest rate spread of the respective currencies.
6) India needs to stop worrying about ratings downgrades. If ratings agencies unfairly penalize India for the COVID lockdown to the exclusion of other developed nations, we should refuse to play ball. Ratings agencies must acknowledge that India’s fiscal position is better than some of the developed nations and it also has great potential to be world’s growth engine.
7) If the Indian economy gets into severe strain due to the lockdown, India can demand recasting and restructuring of some of its dollar debt obligations. Under the leadership of Prime minister Modi India today has greater diplomatic leverage with the International Monetary Fund and the World Bank. As a precedent, Argentina has done this before and it is an accepted tool in international negotiations.
