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India demands for better rating

Published: June 15, 2020
Author: munimji

The Government of India has rejected the rating actions by Moody’s Investor Service by making a statement that India’s fundamentals demand better ratings and countries’ ability to repay its debts. Chief Economic Advisor Krishnamurthy Subramanian made a statement that India’s economy will witness a downfall in the current fiscal year but the Drop will be Limited if there is an economic recovery in the October March period.

Speaking to reporters, he said the finance ministry had in April, which was just weeks into lockdown, had estimated GDP growth at 1.5-2 percent in the current fiscal on anticipation of a V-shaped recovery.

“The V-shaped recovery is driven by evidence of what was seen in the Spanish Flu… The anticipation of recovery … what is uncertain though whether the recovery will happen in the second half of the year or will it happen next year and therefore the actual growth will depend on demand.
He took comfort in rating agencies acknowledging reforms saying these are critical elements for higher growth next year.

The ministry, he said, is working on a large range of growth estimates for this year, and recovery in the second half of next year is also part of baseline expectation. The Indian economy grew at the slowest pace in 11 years at 4.2 percent in 2019-20.

S&P Global Ratings and Fitch Ratings has forecast India’s economy to shrink by 5 percent in the current fiscal, while Moody’s has projected growth to contract by 4 percent. S&P, however, has projected GDP growth to bounce back to 8.5 percent, Fitch expects it at 9.5 percent in 2021-22. Moody’s has forecast growth at 8.7 percent next year.

Moody’s, earlier this month, while downgrading India’s rating to lowest investment grade, had said India faces a prolonged period of slower growth and policymakers will be challenged to mitigate risks of low growth, deteriorating fiscal position, and financial sector stress.

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