Uncertainty on FDI, rating agencies watch closely: Nomura

In an interview to CNBC-TV18, Sonal Varma, India economist of Nomura Financial Advisory & Securities says sorting the FDI in multi-brand issue is of utmost importance.

While she hopes the winter session does not end up being another washout session, she fears the discussions on FDI in multi-brand retail will be hijacked by the opposition to the FDI in retail.
Also read: Winter Session of Parliament: Possible scenarios on FDI Below is the edited transcript of Varma's interview. Q: What kind of reasonable estimates or expectations are you setting out for this winter session? What do you think will be crucial there?
A: Well the only certainty is that there is a lot of uncertainty. What finally really gets done depends on two issues, one is whether we do have a vote of confidence motion raised or not. However, more important is how the FDI in multi-brand issue is sorted out. There could be voting on that issue, which is really not required because it is an executive decision or it could only be a discussion. Our worry is mainly that even if it is a discussion on FDI in multi-brand issue, then what will happen is that the entire agenda will get hijacked because of discussions on FDI in multi-brand retail. So, there is a lot of uncertainty and as of now, we just hope that this does not turn out to be another washout session. Q: Among the other Bills that are lined up, which do you think have the highest chances of seeing some legislation?
A: Of the bills that have been put forth for this session the ones that could have a reasonable chance of getting through provided Parliament does function are; the Companies Bill, the Competition Bill, the Forwards Contract Act, possibly even the Banking Amendment Bill. However, some of the other Bills, like the insurance and the pension ones; clearly there is a lot of opposition from the opposition parties where it may be difficult to actually get the majority going. So, those would be a bit more difficult to get going. Q: This morning there was some observation from Moody’s analytics saying that they were enthused by the recent policy moves including issues like FDI. If this does not go through as planned from the government, would you say that there is some kind of rating threat looming going into next year?
A: Yes, FDI is one thing that they are watching, but there are many other factors also that they are watching. Since the reform announcements in September, the main thing everyone is watching, is how many of those reforms actually get implemented.  Out of all the reforms that have been announced, only about 20 percent of them were fully implemented. The rest of them still need to see implementation and the first step in that implementation is actually this winter session. A lot of those announcements now actually need the legislative approval.
So, to that extent, the next 20 days are very important. The rating agencies will also be watching that, but apart from that also, how the investment cycle is moving, whether the national investment board actually gets cabinet approval or not; is the fiscal deficit really going to come down or not, those are some of the other factors that rating agencies will additionally look at.