This is the most uncertain period for the global economy – perhaps even worse than the 2008 recession witnessed three years ago; and India is by no means decoupled from this world crisis.
Though, India is a domestically oriented economy; the sovereign debt crisis originating in the US and Europe have all the fire power to expose the Indian immune system to the foreign influenza by a single sneeze.
India is largely dependent on the foreign funds – FII and FDI inflows – to bridge the funding gap in its current account deficit. So long as India feeds on the momentum of its secular growth story, the investment scenario tends to remain optimistic and smoothly hauled.
However, as soon as the structural problems within the economy start showing up, the Indian growth story gets fizzled out and is touted as an out-dated investment myth feeding on its past laurels. The less stable FIIs start fleeing our economy, to take shelter under other greener pastures.
Under such circumstances, if there is some positive news flow surrounding the economy; it certainly comes in as pleasant news to soothe investor nerves. One such news that has floated around today is rating agency Moody’s Investors Service reaffirming India rating to Baa3.
Moreover, Moody’s unified India’s sovereign local and foreign currency government bond ratings at Baa3 with a stable outlook. Earlier, India’s rupee sovereign debt rating stood at Ba1 (now Baa3), while its foreign currency debt is rated at Baa3.
In its research release, Moody’s said that Baa3 rating is based on “credit strengths such as a large, diversified economy, robust medium term growth prospects and a strong domestic savings pool that facilitates the financing and refinancing of the government’s relatively high debt burden.”
In its medium-term assessment of the country’s outlook, the rating agency placed its faith on India’s diverse sources of economic growth and its private sector’s productivity to revive investment growth over the next one year.
Contrastingly, Moody’s has also banked on the depreciating rupee value to help boost export competitiveness and soften import demand to narrow down India’s current account deficit.
My Voice: Will India’s demand for import-dependent oil and petroleum products come down amid depreciating rupee? Not really. And, oil accounts for a lion’s share amongst Indian import shipments.
Further, it said that if India is able to improve on its government finances and reduce infrastructure bottlenecks, it could lead to upgraded ratings from the current levels. The rating agency is also hopeful of the scenario given that the government’s debt to GDP ratios has been declining over the last five years, due to high nominal growth.
Against this, the government has already taken a few confidence building measures such as showing urgency in passing key reforms; however I doubt how effective some of these initiatives, such as Food Security Bill, could be :– with the corruption at intermediate levels eating into the structural gains. Other government steps include development of infrastructure through public private models, unveiling National Manufacturing Policy in November, etc.
Do you feel India can really whether the storm amidst global doom scenario?