Rating agency Moody’s has affirmed India’s sovereign rating at BAA3, but raised the rating outlook to ‘positive’ from ‘stable’. However it cautioned that unless the country’s banking system woes were resolved, its credit profile would remain constrained. In an interview to CNBC-TV18, Chief Economic Advisor Arvind Subramanian shares his views on the same.
Below is verbatim transcript of the interview:
Q: What are your first thoughts on the Moody’s upgrading outlook on India?
A: I would broadly say three things. First, this is a validation of the broad direction and stance of government policy over the last many months including the Budget and so on. It also confirms what we have been seeing in the Economic Survey and the Budget that the outlook on the Indian economy is positive in terms of continuing macro stability and better growth prospects because of various factors like reforms, oil prices, monetary easing.
Third, it’s a point that stress in the survey and the finance minister also stressed in the Budget that this shows that the government’s strategy of showing public investment lead and providing a stimulus to growth is consistent with our commitment. Q: The agency says – we still compare very poorly with our peers - and the Moody’s statement says that this rating also reflects India’s weaker performance relative to its peers on fiscal, inflation and infrastructure related matrix. At 6 percent consolidated state and central deficits, we compare poorly with sub-4 percent for peer countries in the Baa3 rating. Would you say we are a distance away from rating upgrade?
A: I do not want to speculate on what will happen in future but this is one more valuation of the overall stance of macro and growth policies in India and what they are commenting on is more a level effect. But the fact is they are also signaling that we are moving in the right direction.
Q: Reading from the release – according to Moody’s the ability of policymakers to strengthen India’s credit profile to a level consistent with the rating will become apparent over the next 12-18 months. So it seems like in the next 12-18 months if things get better, we could expect a ratings upgrade as well. What can we expect from the government’s end in order to strengthen that credit profile?
A: We have gone into great detail in the Budget and in survey on all that planning will be done and needs to be done and remember policies are going to be pursued because they are desirable and not necessarily just because of their impact on investment rating. But the overall stance of reform will continue, continuing commitment to macro stability and growth. So broadly that’s the thrust.
Q: Would we have a problem of plenty now with foreign investors chasing Indian bonds in particular and equities as well? Would you worry about strengthening rupee?
A: As we said in the survey that the problem for India going forward may well be surfeit rather than scarcity of foreign capital. It would put upward pressure on the exchange rate and that’s a delicate balancing act that all successful emerging market economies have to content with. So that’s life in the fast lane.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
