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Informist, Tuesday, Aug 6, 2024

 

NEW DELHI – The ongoing political crisis in Bangladesh is unlikely to have a meaningful impact on India's overall trade position, S&P Global Ratings Asia Pacific Sovereign Ratings Director Andrew Wood said today.

 

Indian exports to Bangladesh will be impacted because of weak demand in Bangladesh on the back of the political unrest, Wood said. But the impact on India's overall trade position will be limited, he said.

 

"India is a well diversified exporter to the entire world and their trade profile is significantly larger than the bilateral trade relationships with a country like Bangladesh," Wood said at a webinar. "So whatever impact is going to be on India's exports to Bangladesh directly is unlikely to have a meaningful impact on its overall trade position for the fiscal year or on the overall external position."

 

Bangladesh prime minister Sheikh Hasina resigned from her post and left the country on Monday after weeks of protests that claimed over 300 lives. The protests, initially led by students, began in early July demanding to abolish a quota system for government jobs, which they deemed discriminatory. Under the system, 30% of government jobs were reserved for families of veterans of Bangladesh's 1971 war of independence against Pakistan. Initially peaceful, the protests turned violent on Jul 15 when Dhaka University students clashed with police and Awami League party activists. Bangladesh is now set to have an interim government.

 

India exported goods worth $11.06 to Bangladesh in 2023-34 (Apr-Mar), 9.5% lower than in 2022-23. Some of India's biggest exports to Bangladesh include cotton, vehicles, vegetables, coffee, tea, iron and steel, among others.

 

Wood said that India continues to be a standout in South Asia. "We see a lot of promise in India's economic growth story even amid a somewhat challenging global economic growth outlook," he said.

 

S&P revised its outlook on India to 'positive' from 'stable' in May, citing the country's robust economic growth, deepening economic reforms, and a view of policy stability. The rating agency had also affirmed India's sovereign credit rating at 'BBB-'. 

 

Looking ahead, S&P can raise India's rating if the country's general government fiscal deficit falls to below 7% of GDP on a structural basis, Wood said, adding that the general government deficit is unlikely to be below 7% of GDP this year. 

 

The central government has set a target to lower its fiscal deficit to 4.9% this financial year, while states are allowed a fiscal deficit of 3.5% of gross state domestic product, of which 0.5% are tied to power sector reforms.

 

"The trajectory for this metric over the next few years will remain an important one for the directionality for India's ratings," Wood said.  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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