- Moody’s decision to upgrade India’s sovereign credit rating by a notch after a gap of almost 14 years is undoubtedly a welcome recognition of the country’s enormous economic potential. It has been driven by some of the recent structural reforms — including the implementation of a long-delayed nationwide goods and services tax (GST), and moves to address the logjam of mounting bad loans in the banking sector through an Insolvency and Bankruptcy Code.
- These are expected to help ensure a healthier enabling environment to realise this potential over the longer term. The ratings agency has said the reforms undertaken until now would “advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth.” And viewed in conjunction with the sizeable foreign exchange reserves, India’s overall capacity to absorb shocks is now seen as much better. The market reaction — with the stock indices and the rupee posting handsome gains intraday — signals that local businesses and overseas investors see the upgrade as a vote of confidence in the economy and the policy approach to economic management and reforms, especially at a time when momentum has slowed to a 13-quarter low.
- Still, as Moody’s has flagged in explaining why it has opted to change the ratings outlook to ‘stable’ from ‘positive’, the “high public debt burden remains an important constraint on India’s credit profile relative to peers.” At 68% of its GDP in 2016, general government debt in India is significantly higher than the 44% median for other similarly ranked economies, according to the New York-based agency, which sees the debt-to-GDP ratio widening by about 1 percentage point this fiscal year to 69%. Moody’s cites “the large pool of private savings available to finance government debt”, the steps taken to enlarge the formal economy by mainstreaming more and more businesses from the informal sector, and measures aimed at improving spending efficiency through better targeting of welfare measures, as all broadly supportive of a gradual strengthening of the fiscal metrics over time. But it is this very same ‘time’ element that holds the key to how the macro-economic situation could evolve. With economists and monetary authorities warning of the likelihood of fiscal slippages as a consequence of farm loan waivers by States, the Centre’s implementation of the pay commission’s award and even weaker tax receipts amid teething issues with the GST, there is a danger that the government may end up missing its fiscal deficit targets in the near term. And therein lies the challenge. For the economy to capitalise on this upgrade, the political leadership must stay the reform course, electorally alluring temptations to resort to populism notwithstanding.
Sovereign: possessing supreme or ultimate power.
Example: In modern democracies the people’s will is in theory sovereign
Synonyms: supreme, absolute, unlimited, unrestricted, boundless
Upgrade: raise something to a higher standard, in particular improve equipment or machinery by adding or replacing components
Example: The cost of upgrading each workstation is around $300
Synonyms: improve, modernize, update, bring up to date, make better
Notch: an indentation or incision on an edge or surface.
Example: There was a notch in the end of the arrow for the bowstring
Synonyms: nick, cut, score, incise, carve, scratch, slit, gouge, groove, furrow
Recognition: the action or process of recognizing or being recognized, in particular.
Example: She saw him pass by without a sign of recognition
Synonyms: identification, recollection, remembrance
Enormous: very large in size, quantity, or extent.
Example: Her enormous blue eyes
Synonyms: huge, vast, immense, gigantic, very big, great, giant, massive
Insolvency: the state of being insolvent; inability to pay one’s debts.
Example: The club was facing insolvency
Stimulating: raise levels of physiological or nervous activity in the body or any biological system.
Example: The women are given fertility drugs to stimulate their ovaries
Synonyms: restorative, tonic, invigorating, bracing, energizing, reviving encourage or promote the development of something, typically something regarded as good.
Example: The teacher’s task is to foster learning
Synonyms: encourage, promote, further, stimulate, advance
Conjunction: the action or an instance of two or more events or things occurring at the same point in time or space.
Example: A conjunction of favorable political and economic circumstances
Synonyms: co-occurrence, concurrence, coincidence, coexistence, simultaneity
Constraint: a limitation or restriction.
Example: The availability of water is the main constraint on food production
Synonyms: restriction, limitation, curb, check, restraint, control, damper
Mainstream: belonging to or characteristic of the mainstream.
Example: Mainstream politics
Synonyms: normal, conventional, ordinary, orthodox, conformist, accepted
Amid: surrounded by; in the middle of.
Example: Our dream home, set amid magnificent rolling countryside
Synonyms: in the middle of, surrounded by, among, amongst