India pitches sharp economic recovery to make case for ratings upgrade

In recent meetings with big global rating agencies, Indian officials highlighted the strong domestic economic recovery after the Covid-19 pandemic, and efforts made by the Centre and the Reserve Bank of India to contain inflationary pressures, as they pushed for ratings and outlook upgrades.

During the meetings held in April and May, representatives from agencies, including S&P Global Ratings, Fitch, and Moody’s, were given detailed presentations on the state of the economy. Senior officials from the finance ministry, including Chief Economic Adviser V Anantha Nageswaran, briefed these agencies.

“The agencies were apprised of India’s macroeconomic indicators. What has worked in our favour is that almost all sectors have started to show strong recovery after three waves of the Covid-19 pandemic; bank credit is recovering and private capex spending is coming back,” said an official.

Though the meetings took place before the government released the FY22 national accounts numbers, the data looks encouraging. India’s real GDP grew by 8.7 per cent in FY22, making it the fastest-growing major economy. The output was helped primarily by the agriculture sector and the government final consumption expenditure (GFCE).

According to a presentation shared later by the finance ministry, all sectors have shown strong growth in FY22 when compared with the pre-pandemic levels of FY20 in terms of gross value added (GVA).

However, there were still a few weak spots, and according to sources, under CEA Nageswaran, the assessment provided to rating agencies has been realistic and without unfeasible expectations.

Government officials have admitted that global inflationary pressures due to Russia’s invasion of Ukraine have hit household savings and corporate margins, and will impact growth.
 

“The government and the RBI are working in coordination to minimize the impact of inflation. Many fiscal and monetary policy steps have been taken and will continue to be taken; forex reserves are still strong. India is in a much better shape than other developing and developed nations to counter inflationary pressure,” said a second official.

The official said the rating agencies acknowledged that inflationary pressures are due to the global macroeconomic conditions. However, one of them raised concerns about the high debt-GDP ratio of the general government (Centre+states), and asked if steps are being taken to reduce the ratio to less than 70 per cent, from the current 85 per cent.

In a recent interaction with reporters, Nageswaran had said that high global prices of commodities and significant import dependency with regards to items like crude oil, edible oil, fertilizer, and metals were a concern. Among other headwinds, he listed tightening of monetary policies in most countries, supply-chain bottlenecks, delays & shortage of key inputs, and potential global recession with impact on export growth for India

“Balancing growth, inflation, fiscal and current deficits, and the external value of the currency will be the continuing policy focus this financial year,” Nageswaran had said.

The big three agencies have pegged India’s sovereign debt at the lowest investment-grade rating. According to officials, priority is to pitch for an outlook upgrade.

Last month, S&P lowered its FY23 GDP growth forecast for India to 7.3 per cent from 7.8 per cent. While it is lower than bullish estimates by the likes of IMF, it is slightly higher than the RBI’s forecast of 7.2 per cent.