Indian Finance Ministry stresses role of robust corporate debt profile in ensuring macroeconomic stability

India’s finance ministry highlights corporate debt’s stability role, monitors central bank actions’ impact, and emphasizes on export-led resilience.

In its monthly report released on Monday, the Indian finance ministry underscored the crucial role played by the strong debt profile of Indian corporates in maintaining macroeconomic stability. The report also touched upon concerns that tightening financial conditions by central banks to curb inflation could exacerbate corporate debt vulnerabilities, which are already significant. However, the ministry added that such risks are relatively limited for India compared to other countries.

Interest rate hikes by central banks can impact a business’s ability to service debt, potentially increasing refinancing costs and raising the risk of corporate bond defaults. However, the report suggests that India’s current account deficit (CAD) is expected to come in below projections for the year due to a drop in import-intensive consumption demand and a rise in exports of services. This, along with a decrease in global commodity prices, is expected to further limit India’s CAD.

Furthermore, the report notes that India’s merchandise and services exports have risen by over 16% to $702.88 billion in the April-February period from the previous year, despite a challenging global economy. This positive trend is expected to help lower India’s CAD in the coming years, providing a buffer for the rupee during uncertain times.

Overall, the report emphasizes the importance of maintaining a strong debt profile for Indian corporates while also being mindful of potential risks posed by central bank actions. By closely monitoring these factors and implementing appropriate measures, India can continue to promote macroeconomic stability and foster sustained economic growth.