India Rating
India rating would be higher if agencies were objective, says PM panel's Sanyal
This story was originally published at 16:35 IST on 3 October 2024
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--PM econ panel Sanyal:Indian svc sector can be world-class like Chinese mfg
--CONTEXT: PM econ advisory panel's Sanyal speaking at CareEdge event
--PM econ panel's Sanyal: Need to make services sector more sophisticated
--PM econ panel Sanyal: India rtg could be better if criteria more objective
NEW DELHI – India's sovereign rating would have been better if the credit rating agencies employed more objective criteria, Prime Minister's Economic Advisory Council Member Sanjeev Sanyal said Thursday. As India awaits a rating upgrade, the government has, on several occasions, questioned the methodology used by the agencies.
"We have historically felt that there were certain kinks in their (rating agencies') methodology, which perhaps depress our rating from what it would be if it was a purely objective system," Sanyal said at the launch of CareEdge's global ratings in Gandhinagar. "Notwithstanding that, we will keep interacting with them."
Top rating agencies Fitch and Moody's have maintained their lowest investment-grade ratings of BBB- and Baa3, respectively, for India for several years now, with a stable outlook. S&P has also rated India BBB-, but it upgraded the outlook to positive this year. CareEdge, in its maiden sovereign rating, assigned India BBB+ Thursday.
In its collection of essays titled Re-Examining Narratives, released in December, the finance ministry had called the methodology used by rating agencies "opaque". The government is of the view that the lowest investment grade rating assigned to India is not a fair reflection of the country's economic strength.
After contracting 5.8% in the pandemic year of 2020-21 (Apr-Mar), India's GDP has registered very high rates of growth. In FY24, the economy beat all estimates with 8.2% growth. The Reserve Bank of India has projected 7.2% growth for the current fiscal year.
India is expected to enter a prolonged period of high growth, Sanyal said. However, geopolitical conflicts pose a significant risk, he added. Macroeconomic resilience may help India avoid such risks, Sanyal said. "This is why we as policymakers spend a lot of time on creating buffers in the system. For example, we have $680 billion of foreign exchange reserves, we have cleaned up our banking system, anchored our inflation. We have invested a great deal in shock-absorbers and buffers."
China, on the other hand, entered such a prolonged period of growth in the year 2000, when the environment was conducive, Sanyal said. "It was a Goldilocks period--the global (economy) was growing very fast, global trade was growing very fast, inflation was well-behaved."
In order to sustain growth, India should focus on making its services sector more sophisticated as it has the potential to become world-class like the Chinese manufacturing sector, Sanyal said. "In 10 years, we should have Indian accountancy firms all over the world, Indian legal firms all over the world," he said. "It's not like we don't know the technology, but Indian companies are not doing it. I think we need to take that next step, where Indian companies go out to the rest of the world."
The services sector has grown at a steady pace in the last three years after contracting 8.4% in pandemic-hit FY21. The sector grew 7.6% in the last fiscal year and accounted for about 55% of India's Gross Value Added.
India's services exports also grew by a whopping 27.8% in FY23 to $325.33 bln before the growth decelerated to 4.8% in FY24 due to a slump in global demand. End
US$1 = INR 83.96
Reported by Krity Ambey
Edited by Rajeev Pai
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