The Impact of Crude Price Shock on India’s Current Account Deficit, Inflation and Fiscal Deficit, Mint Street Memo, RBI (with Saurabh Ghosh)
Abstract: The crude price shock in the 1970s sent many economies tumbling down for almost a decade. Four decades later, this shock can still jeopardise those economies which are primarily dependent on crude imports. This study looks at the quantitative impact of crude price shock on India’s three major macro-stability indicators: current account deficit (CAD), inflation and fiscal deficit. We find that if a crude price shock hits the Indian economy, the CAD to GDP ratio will rise sharply irrespective of a higher GDP growth; and a 10 USD/barrel increase in oil price will raise the inflation by roughly 49 basis points (bps) or increase the fiscal deficit by 43 bps (as a percentage of GDP) if the government decides to absorb the entire oil price shock rather than passing it to the end users.
Working Capital Constraints and Exports: Evidence from the GST rollout, Mint Street Memo, RBI (with Saurabh Ghosh and Sankalp Mathur)
Abstract: The implementation and refund delays under the new tax regime of Goods and Services Tax (GST) seem to have led to working capital constraints for firms, which in turn might have hurt their exports in October 2017. We provide evidence supporting this hypothesis using sectoral data on exports and find sectors that have high working capital requirements took the maximum hit during this period. However, various initiatives by the Government of India since then appear to have significantly alleviated exporters’ concerns which got reflected in the exports growth pick up in November and December 2017.