Budget 2019: India Needs To Fix Liquidity Crunch For NBFCs, Says Invesco’s Krishna Memani
The government has to fix the NBFC liquidity crisis if it wants to keep economic growth from falling further, says the Invesco VC.
The Narendra Modi government needs to use the upcoming Union Budget 2019 to fix the liquidity crunch gripping India’s non-bank lenders, if it wants to keep economic growth from falling further, according to Invesco’s Krishna Memani.
“The likelihood that growth falls off further if they don’t do anything increases,” said the vice chairman (investments) at the American investment fund that manages $1,160 billion in assets. “This is something they can address pretty easily if they want to,” he told BloombergQuint in an interview.
Memani’s comments come four days before Finance Minister Nirmala Sitharaman presents the first budget of the new Narendra Modi government. India’s NBFCs are undergoing a liquidity crunch emanating from lack of trust in the sector after the payment defaults at IL&FS Group.
Liquidity can be introduced through multiple channels such as recapitalisation of NBFCs or even recapitalisation of banks, Memani said.
From a long-term perspective, he said the government needs to role out structural reforms which “India needs to get to its manifest destiny, recognising that there is no natural way to get there”. This includes issues like labour and land reforms, he said.
Here are the other key highlights:
- Government may introduce intermediate measures on farm crisis, considering the political standpoint.
- Fiscal flexibility is missing to introduce large stimulus measures.
- Market may be forgiving a small deviation in fiscal path but a large widening of fiscal deficit may not be a good idea.
- The budget will offer some duty sops and tax sops but that is not going to change the trajectory of exports from India.
- Relying on exports to drive long-term growth in today’s world is a very risky proposition.
- I think there is no significant recovery in the cards in either growth or on the earnings front.
- Valuations are pretty high. So from a markets perspective, after the euphoria dies, this is going to be a pretty challenging environment.
- India’s consumer story is probably the most expensive among all emerging markets because that’s where people arrive when they enter India.
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