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Summary
- Capital market would engine growth, as world need more capital
- Impairments in balance sheet likely
- IMF forecasts might me missed as COVID-19 surge continues unabated
The estimates of economic recovery may be sent for a toss, if COVID-19 pandemic does not relent anytime soon. While Europe is also witnessing rise in infection, it has gone out of hand in India – the world’s most populous country.
While the International Monetary Fund (IMF) pegs at global economy to grow by 6.5% in 2021, probably no one would have thought that the second wave would be devastating. The second wave of virus that originated in Wuhan, China, is ravaging the world – especially India, the world’s fifth largest economy.
The fund, in its recently released World Economic Outlook, pegged India to grow over 12% -- the highest in the world. The estimate in India, on-ground experts say, is that the much-anticipated economic recovery has been pushed by at least two quarters now.
As on date, India contributes 3.2% to the world economy. It is slated to increase by 50 basis points (bps) in next five years but has a far higher potential as well. But that would be a possibility has COVID-19 not hit the economy, and government not mismanaged it.
But then the world is in mess from COVID-19, and that is the reality that we would have to adjust for. From that point, we must look out for the solutions.
In last one year, as global stimulus packages got diverted towards the stock markets, the world witnessed an unprecedented rally in the secondary capital markets – stock markets. Many benchmarks have doubles since the March 2020 lows.
It is the time that the wealth created in this share rally now be channelised towards primary capital market. And there is reason for it. Balance sheets of many companies across the globe are truncated. The asset quality of banks – one of the primary drivers of growth – is under stress across the economies. One the write-off in the banks starts, it would impair their balance sheets. And then the banks would need capital.
Also Read: RBA sees asset quality downgrade in banks
Also Read: Opinion: Banks may be reluctant lenders this year
Not only banks, most industries, need capital. They need the capital to grow. And that would come from primary capital markets – and that is where the keys of world economic recovery.
(The opinions expressed in this blog are those of the author and they do not reflect the opinions or views of the organisation.)
