India set to come out of "fragile five list", in a better position to withstand Fed rate hike impact: Swiss-Re

MUMBAI: India is set to come out of the list of fragile five economies with strong growth prospects would be driven by strong fundamentals and resilience to China economic woes – a prime drag to global economic prospects, according to global re-insurer Swiss Re. This makes it better placed to face the impact of a Fed rate hike than it was in 2013.

“ India and Indonesia are set to come out of the fragile five list” said Kurt E Karl, chief economist, Swiss Re in an interaction with ET. “India’s growth is independent of rest of the world. Growth has accentuated, inflation and current account deficit is in a good shape and fiscal balances too have improved ” he added.

The name “Fragile Five ” was coined by Morgan Stanley during the Fed taper fear days in the summer of 2013 and it identified Turkey, Brazil, India, South Africa and Indonesia as economies that have become too dependent on skittish foreign investment to finance their growth ambitions.

“India will have lesser impact of China’s slowdown due to limited economic ties” said Karl. “Its exports to China are less than 4% of its total exports” Besides, India has benefitted from lower oil prices and its current account deficit has turned around from the record high 4.8% of GDP registered in the 2012. The new government which assumed power in May 2014 has initiated reforms to remove red tape, facilitate foreign investment and foster economic growth.

Fed is already behind the curve. Its time for it to raise rates US fundamentals are improving as suggested by rise in wage bill among others, according to Karl.

A Fed rate hike may not be as damaging as in 1997-98 currency crisis. Though select countries like Brazil Turkey and South Africa could have problems, India may not be as severely hit though.

Even with possibility of a strong economic growth, Swiss Re notes that India is still an under insured market as average un insured natural catastrophy losses is over the last ten years is estimated at $4 billion by Swiss Re. India continues to be vulnerable to a number of natural catastrophe risks including flooding, earthquakes, storms, droughts and landslides.