Global credit rating agencies validate govt’s reforms programme: CEA

Chief Economic Adviser to the Government, Krishnamurthy Subramanian

New Delhi, (Asian independent)┬áIndia’s growth outlook presented by a leading global credit agency validates the Modi government’s structural reforms programme, a key government economic advisor said in Thursday.

In an online press briefing, Chief Economic Adviser to the Government, Krishnamurthy Subramanian, pointed out that S&P has projected growth of 8.5 per cent for next year, based on the structural reforms being carried out by the Centre.

The briefing comes a day after S&P Global Ratings maintained India’s sovereign credit ratings, affirming its ‘BBB-‘ long-term and ‘A-3’ short-term unsolicited foreign and local currency ratings.

Besides, it said India’s outlook on the long-term rating is stable.

Similarly, Fitch in APAC Sovereign Credit Overview 2Q20 gave an economic growth forecast of 9.5 per cent for 2021-22.

“They particularly mentioned about the push for reforms… the reforms that have been included in the Aatma Nirbhar Bharat package have also been mentioned. Using some of these measures as the backdrop, S&P projects the growth for next year to be 8.5 per cent and this is based on the emphasis on structural reforms that has been done in the package.

“Also, important to keep in mind was that Fitch came up with a report for APAC countries, where they have projected growth for next year to be 9.5 per cent. Both these rating agencies do acknowledge that this year growth will be quite tepid,” he said.

Both the agencies predict a contraction of 5 per cent in GDP for 2020-21.

S&P said that India’s economy will contract in fiscal 2021, largely owing to the impact of the Covid-19 pandemic. It forecast a 5 per cent decline in real GDP growth, which would be the worst economic performance in recent history.

Subramanian said both the agencies talked about high sustained investments and growth rates without any macroeconomic imbalances because of the structural reforms that have been implemented.

“So overall the rating being maintained and the outlook remaining stable is good news, especially from the perspective of the proposals that were there in the budget this year, for inclusion of the government of India bonds in the sovereign bond indices,” he said.

“This clears the path for us to proceed ahead on that move.”

On the economic package which incorporates these structural reforms, the CEA said: “We have looked at the packages announced by several countries and one thing that stands out is that all countries have used different monetary, liquidity measures and typically countries, wherever they have greater space, they have relied on those steps.”

“As long as it reaches the stakeholders and ensures that the damage due to the Covid pandemic is minimised, that is what we care about.”

Notably, the CEA said that base effect will positively impact next year’s growth rate.

“The growth for next year does build in the base effect, because of lower effect this year but the fact that the rating agencies are also talking about path of sustainability,” he said.

“The path of debt sustainability does not depend on growth of just one year but depends on the growth trajectory and there, they are actually building in the benefits that are likely accrue from the reforms that have been announced which will be important bringing productivity improvements of the economy.”

Asked about the forecast for the current fiscal, he said: “At the start of this financial year around April, when we were in the first few weeks of the lockdown… at that time, we had estimated growth to be 1.5-2 per cent, which was based on a V-shaped recovery.”

“The V-shaped recovery was itself driven by what was seen in the Spanish Flu episode which is the only other pandemic which is close to Covid. Its important to keep in mind that even though the Spanish Flu episode was far more devastating than Covid.”

According to Subramanian, in Spanish Flu, which came after World War I, one-third of the global population was infected.

In contrast, he said that even with large numbers, about one per cent of the population is impacted today.

The uncertain part, said the CEA was whether that recovery will happen in the second half of the year or will it happen next year.