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Rating changes not big event for markets, should not be guided by it: CEA KV Subramanian

CEA Subramanian pointed out that since the COVID-19 outbreak, rating agencies have downgraded around 33 countries, adding that sovereign ratings are not a leading indicator.

June 02, 2020 / 03:36 PM IST

Rating changes, upgrades or downgrades are not really a big event for markets, Chief Economic Adviser Krishnamurthy V Subramanian told CNBC-TV18. Going by assessment of the historical data pertaining to impact of ratings changes, Subramanian said that the same does not seem to really guide market action.

His comments come in the wake of India's credit rating downgrade by Moody's. The agency on June 1 downgraded India's local-currency senior unsecured rating to Baa3 from Baa2, and its short-term local-currency rating to P-3 from P-2, with the outlook remaining negative.

Also Read | What does Moody’s rating downgrade reveal about the economy? Hint: COVID-19 is not the villain

In the interview, CEA Subramanian pointed out that since the COVID-19 outbreak, rating agencies have downgraded around 33 countries. However, sovereign ratings are not a leading indicator, he said, adding that we should not be guided by the same.

He highlighted that debt sustainability should not be an issue for India as long as we are able to maintain the growth rate at or around the 4 percent estimate.


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However, he spoke about the significant uncertainty on the demand side, adding that individuals tend to be far more conservative with respect to spending, vis-a-vis businesses. The increasing balances in Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts have increased, which he said shows people are not spending.

The country's growth rate for FY20 fell to an 11-year-low of 4.2 percent. A further hit is expected in the ongoing quarter as businesses across the country were at a virtual standstill due to the nationwide lockdown to contain the COVID-19 pandemic.

Earlier today, addressing the annual session of the Confederation of Indian Industry (CII), Prime Minister Narendra Modi said the country's industry leaders need to invest in building robust local supply chains to strengthen India's position in the global supply chain. He added that even though the COVID-19 pandemic has slowed down India's speed, the country has now moved from the lockdown to unlocking its economy. Expressing his faith in participants across economic sectors, he said that the country will get back its growth.

Also Read | PM Modi to businesses on building Atmanirbhar Bharat: Invest in building robust local supply chains for global orders
Moneycontrol News
first published: Jun 2, 2020 03:34 pm

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