Expert Zone
Straight from the Specialists
The threat of a junk rating
(Any opinions expressed here are those of the author and not of Thomson Reuters)
Credit ratings by agencies are never very objective and their long-term outlook is also seldom accurate. Sovereign ratings, in particular those which are not solicited, are generally unreliable and often biased. But rating agencies do draw attention to critical issues that should not be ignored.
Standard & Poor’s announced on Friday that it had maintained India’s rating at BBB- with a long-term negative outlook. This assessment is based on three major considerations. The budget deficit, government debt and the current account deficit (CAD) are too high.
The fiscal deficit has been at the centre of debate and action for more than six months and the finance minister has brought it down from 5.7 percent last year to 4.8 percent in 2013-14 with the assurance that it will be brought down further. But there are still doubts.
Debt is not yet a big problem for India though it has its ramifications. Going by the IMF, government debt in Japan is 236 percent of GDP, 107 percent in the United States and 88 percent in the United Kingdom. For India, it is 67 percent with a foreign debt component at 4.7 per cent of GDP. Debt has a cost. In the current year, for example, interest payments by the central government would be 3.7 trillion rupees, which would be 22 percent of the total expenditure or two-thirds of the budget deficit.
Decoding Subbarao’s signals
(Any opinions expressed here are those of the author and not of Thomson Reuters)
When Reserve Bank of India (RBI) governor Duvvuri Subbarao announced last week that the central bank was cutting its policy interest rate for the third time this year, he also made a statement that may well have been directed as much to watchers of the Indian economy as to its managers. His message to the government, originally coded in technocratic diplomacy: It’s time for you to do your share in reviving growth.
Financial markets had widely anticipated the RBI would cut its repo rate by 25 basis points (bps). However, they also expected its policy guidance to adopt a less hawkish tone than in the two prior cuts. After all, inflation had continued to ease and the economy still needs all the support it can get to come back on the growth path. Instead, Subbarao was categorical in saying that the “growth-inflation dynamic yields little space for further monetary easing.”
India Markets Weekahead: Beware the Ides of March
(Any opinions expressed here are those of the author and not of Reuters)
Markets ended budget week below support levels of 5800/5840 and just when the six-month rally seemed over for good, it made a spirited V-shaped recovery to close at 5946 on Friday, with gains of 3.95 percent. The Street is divided with some expecting this to be the beginning of a new rally with the market scaling highs that it missed in February; others see it as a strong pullback which will fizzle out soon.
The government seems to be responding faster to allay investor fears. It was quick to respond to FII worries over proposed changes in tax residency certificates. Finance Minister P. Chidambaram has been assuring investors of continued policy measures, including the Direct Taxes Code (DTC) bill being introduced in the current parliament session.
Budget 2013: A run-of-the-mill affair
(Any opinions expressed here are those of the author and not of Reuters)
After the sustained hype of a game changer budget, Budget 2013 was a totally run-of-the-mill affair with no announcements of any kind of deregulatory or growth propelling initiatives.
True enough, some of the more promising measures taken in the last 12 months were not related to budgetary statements. Not surprisingly, the Sensex greeted Budget 2013 by falling.
India Markets Weekahead – Opportunity for those who missed out rally
(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)
It was a second straight week of losses of 1.59 percent with the Nifty closing at 5,903. As discussed in this column a fortnight back, we are in a phase which would tire out the participants and change the mood to a negative consensus on the street.
Taking the Indian economy to a higher orbit
(Any opinions expressed here are those of the author, and not necessarily of Reuters)
Space research in India has come of age in the last five decades and the country is now in the elite club of countries capable of launching satellites for commercial purposes. What made this possible? An environment made conducive by government policy, objectives clearly spelled out, availability of funds, a homegrown talent pool and international tech support. Can a similar strategy work to take the Indian economy and the capital market to stratospheric levels?
India Markets Weekahead – Still time to tank up for a pre-budget rally
(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)
The Nifty has crossed 6,000 levels while the Sensex breached the psychological barrier of 20,000 to touch a two-year high — triggered by an overdrive of government action, encouraging macro numbers, corporate results and no bad news internationally.
Concerns about current account deficit
(Any opinions expressed here are those of the author, and not those of Thomson Reuters)
The current account deficit (CAD) which touched 5.4 percent of the GDP is a matter of deep concern. It is well beyond the 3 percent danger mark which was crossed more than 18 months back and caused the rupee to depreciate.
The wait for the rate cut
(Any opinions expressed here are those of the author, and not those of Thomson Reuters)
At its mid-quarter review on Jan. 18, the Reserve Bank of India (RBI) did not cut the repo rate and also left the CRR unchanged. But it raised hopes that policy easing can follow in the fourth quarter.
The year the Indian economy stalled
(Any opinions expressed here are those of the author, and not those of Thomson Reuters)
The year 2012 has seen the worst an emerging market economy can tolerate. Had the government been a little less reticent and more proactive, growth would not have dropped this low in spite of the economy being mauled by inflation. Other emerging market economies did exactly that.
