India's Sovereign Ratings- Challenges for Improvement in Ratings

 

- Brief overview of India's sovereign ratings:

 India's sovereign rating is a measure of the country's creditworthiness and ability to repay its debts. It is determined by various credit rating agencies based on factors such as economic growth, fiscal policies, political stability, and external debt. India's current sovereign rating stands at BBB- with a stable outlook from Standard & Poor's, Baa3 with a negative outlook from Moody's, and BBB- with a stable outlook from Fitch Ratings. Despite challenges such as high public debt to GDP ratio necessitated by Covid and widening fiscal deficit , India has been able to retain Investment Grade Ratings due to sustained improvements in public finances. (Fiscal deficit trend)

 - Sovereign rating is crucial as it reflects the creditworthiness of a country and its ability to repay its debts. It also affects the interest rates that a country has to pay on its borrowings, which in turn impacts its economic growth and development.

 -  Furthermore, sovereign ratings are used by investors to assess the risk of investing in a particular country. A lower rating can result in decreased foreign investment and a weaker currency, while a higher rating can attract more investment and strengthen the economy. Therefore, maintaining a good sovereign rating is essential for a country's financial stability and growth.

India's Sovereign Ratings: How it can be Improved

The strengths of the Indian economy lie in its fast-growing economy and strong external balance sheet. However, S&P Global Ratings has flagged weak fiscal performance and low GDP per capita as areas of concern.Fitch Ratings have also mentioned that headwinds due to inflation, high interest rates, global slowdown apart from internal factors like high debt and fiscal deficits will moderate India's growth in the next few years before rebounding to 6.7% by 2025.

S&P expects India's economy to grow by about 6% in 2023/24, with investments and consumer momentum helping growth prospects over the next few years. However, despite its strong economic growth, India's sovereign credit ratings do not fully capture its fundamentals. The Economic Survey has called for sovereign credit ratings methodology to be made more transparent, less subjective and better attuned to reflect an economy’s fundamentals.

One way to improve India's sovereign ratings would be to address the concerns raised by rating agencies such as weak fiscal performance and low GDP per capita. This could involve implementing policies aimed at reducing the fiscal deficit and increasing GDP per capita through measures such as increasing investment in human capital and infrastructure.This years'budget has increased Capital Expenditure to Rs10 lakh cr. in an unprecedented infra push which will have a multiplier effect throughout the economy and will also crowd in private investments.The new PLI scheme is also expected to add to these efforts in increasing manufacturing growth and generating job opportunities to the growing population. This can also give a fillip to the country's exports of manufactured products by taking advantage of China+1 strategy of many MNCs like Apple etc.

Another way to improve India's sovereign ratings would be for developing countries to come together to address the bias and subjectivity inherent in sovereign credit ratings methodology and bring in more transparency. India has already raised the issue of pro-cyclicality of credit ratings in G20.

In conclusion, improving India's sovereign ratings would involve addressing the concerns raised by rating agencies as well as working towards making the sovereign credit ratings methodology more transparent and objective.

India's Exports Trend

 India is a major player in the global economy and has seen significant growth in its exports over the years. In 2021, India exported US$394.8 billion worth of goods around the globe, up by 33.4% increase since 2017 and accelerating by 43.3% from 2020 to 2021.

India’s top exports by value in 2021 were refined petroleum oils, diamonds, medication mixes in dosage, jewelry and rice. These major exports approach one third (29.4%) of India’s overall export revenues.

India’s top trading partners in terms of countries that imported the most Indian shipments by dollar value during 2021 were the United States, United Arab Emirates, China, Bangladesh, and Hong Kong.

India has a relatively diversified range of exported goods and ranks among world-leading countries exporting diamonds, jewelry and refined petroleum.

The growth in India’s exports can be attributed to several factors such as its strategic location near highly populated trading partners including China, Pakistan and Bangladesh, its relatively weaker local currency since 2017 which makes India’s exports paid for in stronger US dollars relatively less expensive for international buyers, and its focus on improving the ease of doing business.

Overall, India’s export trends show a positive trajectory and the country is well-positioned to continue its growth in the global economy.

India's leading export destinations are the United States, the United Arab Emirates, the Netherlands, Bangladesh, and Hong Kong. The US remains India's top export destination, accounting for 18.2% of total exports in FY2022. The UAE is the second largest export destination, accounting for 11.4% of total exports. The Netherlands is the third largest export destination, accounting for 4.7% of total exports.

The main export items from India are petroleum products, gems and jewelry, engineering goods, textiles, and chemicals. Petroleum products are the largest export item, accounting for 22.8% of total exports in FY2022. Gems and jewelry are the second largest export item, accounting for 14.7% of total exports. Engineering goods are the third largest export item, accounting for 12.1% of total exports. Textiles are the fourth largest export item, accounting for 8.4% of total exports. Chemicals are the fifth largest export item, accounting for 7.2% of total exports.

The government has taken a number of measures to boost exports, including:

• Simplifying the export process
• Providing incentives to exporters
• Promoting exports through trade fairs and exhibitions
• Signing free trade agreements with other countries

These measures have helped to boost India's exports and are expected to continue to do so in the coming years.

Outlook for India's Exports in 2023

The outlook for India's exports in FY 2023 is positive.

Given below is the Exports in US$Billion

Merchandise exports have registered highest ever annual exports of USD 447.46 billion with 6.03% growth during FY 2022-23 surpassing the previous year (FY2021-22) record exports of USD 422.00 billion.

This is against the government target of US$450 billion for merchandise exports in FY2023. This target has been achieved, given the strong growth in exports in recent years.

Services export lead the overall exports growth and projected to set a new record annual value of USD 322.72 billion with growth rate at 26.79 percent during FY 2022-23 over FY 2021-22.

The main factors that will drive India's exports in FY23-24 are:

• The continued growth of the global economy though affected by high interest rates and stagflation/recession.
• The rising demand for Indian products & services in major export markets,including value add petroleum products in Europe,even though the base Oil & Gas products are imported from Russia.
• The government's continued focus on boosting exports

The government has taken a number of measures to boost exports, including:

• Simplifying the export process
• Providing incentives to exporters
• Promoting exports through trade fairs and exhibitions
• Signing free trade agreements with other countries

These measures have helped to boost India's exports and are expected to continue to do so in the coming years.

Overall, the outlook for India's exports in FY 23-24 is positive despite muted growth in april 2023 at 2% including Services Exports estimated at US$30.36 bn and Merchandise Exports estimated at US$34.66bn

The government's focus on boosting exports and the continued demand for Indian products & services in the global economy are expected to drive exports to new heights.

Time series of IT released by CBDT

Time series data of Direct Tax Collections by GOI is being released by IT Dept/CBDT now and then.There is no regularity in release of data and also in data details.Previous Time series data was released upto the year FY18-19 in May/ of 2020.Now this update has been released after 3 years gap.(Time series data)

The time series data contain whole host of details and a student interested in analysing our country's Direct Tax collection , can Data mine large amount of useful information.

The most important datapoint is Direct Tax GDP ratio (Chapter 1.4) which has increased to 2.52% in FY21-22. Next to that is Chapter 1.5 which gives Pre-Assessment and Post-Assessment Collections.

 Two observations based on the latest Time Series Chapter 1.5 details .1)it strengthens the argument that more than 89% of Direct Tax collections are thro Advance tax,TDS and Self assessment Tax.This percentage is even without considering,Equalization levy, Central TDS, Dividend Tax etc.which are also pre assessment collections.This leads to the obvious question as to what is the necessity for the Assessment proceedings?

IMHO, atleast Salary earners,who are assessees,  if they have a Form16 issued by the employer to back up should not be subject to separate Assessment proceedings.Even for others, Assessment can be dropped on a case by case basis if they show atleast 15% YOY increase in their Taxable income and Tax payments.

CBDT can call this scheme as "File & Forget " Assessment to encourage this.Data intelligence of IT dept should be deployed to prevent misuse of this scheme.Trusting the Assessees will instill confidence in them and will lead to better compliance over the long term.

 2)chapters on Number of IT return filed,No.of persons filing IT return, No.of Tax payers , have been left out.These details were available in the earlier Time series data Why they have been left out now?Nobody knows.

Old Pension System(OPS) vs New Pension System(NPS)

All opposition political parties worth their salt have released their election manifestos condemning NPS and promising OPS, if they get elected.

Already Congress has reverted back to OPS in Rajasthan, calculating that they will be able to save on Pension in the initial years upto middle of next decade and then the Pension bill will balloon."In the longterm everybody is dead" is what Lord Maynard Keynes said. So Long term is far off politically.

OPS is inherently beneficial to Govt employees as they dont contribute to their Pension from their Salary but is wholly unsustainable fiscally and it also benefits Govt employees at the cost of Common man by shifting the burden of their Pension to the tax payers .It is like robbing Peter to pay Paul.If the fiscal deficit exceeds the target fixed by RBI and Govt, then it means the present State Govt is kicking the can down the road for future generations to service the bloated borrowings due to higher fiscal deficit today.

But NPS is the right solution for the long term and if some tweeking can be done to make it attractive that should solve the problem of government retirees.

In the current  NPS, many retired Government servants are saying their pension income is not 50% of last drawn salary, On top of it , the pension also fluctuates and there is no revision considering the cost of inflation ,based on Dearness Allowance computation. These are available for Pensioners under the OPS.

If these are addressed thro proper restructuring of NPS,that should be acceptable to retirees who are currently under NPS.

GOI has appointed with Finance Secretary as the Head of a Committee that would look into the Pension issues of the Government employees. This Committee would study and provide the path forward for streamlining the NPS to bring it in line with more attractive OPS. 

பிராமணர்களின் பூர்வீகம் -ஆரியன் வந்தேறியா ?

 பிராமணர்கள் பூர்விகம் இந்த பாரத மண்தான் 

1)இந்தியாவை கர்மபூமி-இப்புவியில் உன்னதமான இடம்-என்று வேதங்கள் சொல்கின்றன. பிராமணர்கள் கடைமையாக  தங்கள் சங்கல்ப மந்திரங்களில் இந்திய/பாரத புண்ணிய பூமியில் சடங்குகளை செய்வதாகத்தான் சொல்லித் தொடங்குவார்கள் 

2)இந்தியாவில் தான் பிராமணர்களின், இந்துக்களின் அனைத்து வழிபாட்டுதலங்களும் உள்ளன.காசியும், இராமேஸ்வரமும் இவைகளில் மிக முக்கியமானவை.வேற்று நாட்டிலிருந்து வந்தவரானால் இந்தியாவில் வழிபாட்டுத்தலங்களுக்கு முன்னுரிமை கொடுத்திருக்க மாட்டார்கள். இந்நாட்டில் தோன்றிய இராமனையும், சிவனையும், கண்ணனையும் கடவுளர் ஆக்கியிருப்பார்களா.

3)நம் தாய்மொழி தமிழ்,சிவபெருமானின் அருளால் அகத்திய முனிவரால் தொடங்கப்பெற்றது என்று அறிவோம். அவர் பிராமணர்.தமிழின் மிகத்தொன்மையான தொல்காப்பியம் எழுதிய தொல்காப்பியரும் பிராமணர். ஏனெனில் அவர் வடமொழி ஐந்திரம் என்னும் இலக்கண நூல் நன்கு பயின்றவர்.

இவையெல்லாம் நம்கண்முன்னே உள்ளங்கை நெல்லிக்கனியைப்போல் தெரியும் சான்றுகள்.

ஆரியன் படையெடுப்பு என்பது ஆங்கிலேய ஏகாதிபத்தியத்தின் வலிந்து திணிக்கபட்ட கோட்பாடு .இது நம் இந்திய சமுதாயத்தை பிரித்தாளும் சூழ்ச்சியில்,பிரிட்டிஷார் வேண்டுமென்றே  விதைத்தது  . ஏனெனில் ஆரியன் தன் மதத்தை வெளியில் இருந்து கொண்டு வந்திருந்தால் ,கௌதம புத்தர் தன்னுடைய கோட்பாட்டை "ஆரிய மார்க்கம்/வழி  " என்றும் ,தன் கொள்கைகளை "ஆரிய சத்தியம் " என்றும் சொல்லியிருப்பாரா ?ஆரியம் என்ற வட மொழி சொல்லுக்கு "உயர்ந்த/உன்னதமான " என்பதுதான் உண்மையான பொருள்.

ஆரியன் வந்தேறிகள் என்று சொல்லுமுன் இவற்றை சற்றே யோசித்து பார்க்க வேண்டும் என்பது என்னுடைய தாழ்மையான அபிப்ராயம் .

Q3 GDP growth

 Q3 FY23 GDP growth estimates released on 28th Feb 2023 mentions 4.4% growth as against 5.4% GDP growth estimated during Q3 of FY 22.With estimate of about 4 to 4.5% growth in Q4, the full year FY 23 GDP growth will be around RBI's GDP growth estimate of 6.8%.The nominal GDP growth for the full year FY23 will be around 15.9%

Q2 FY 22 GDP growth is now estimated at 6.3%.

The most important datapoint in these estimates is the revision of GDP growth of Pandemic years.

The cumulative average real GDP growth during FY19-20 to FY 22-23 is now estimated better at 3.2% as against the potential real GDP growth of 7% of Indian economy.

Since the GDP estimates of the previous years have been revised upwards, the base effect has impacted the current year GDP growth estimates.

The most worrying aspect of Q3 of FY 23 is the contraction of manufacturing output at -1.1%.

Private consumption which contributes about 60% of Indian GDP has also languished at 2.1% in Q3 FY23.

Again Statistics reg. IIP and Consumption Spending Survey are not reliable and they are constantly under revision upwards now.MOSPI has an important task on hand for strengthening data collection for estimating IIP and Consumer Spending and making them robust.

With unabated inflation estimated at around 6% for the FY 23 ,which is the upper tolerance level of RBI, the monetary policy will have to continue with elevated borrowing costs. Such high borrowing costs dampen Private Consumption further feeding into a vicious cycle of lower GDP growth.

Government will have to be mindful of its high fiscal deficit which is also fuelling inflation to some extent.But Government is banking on Capex expenditure to crowd in Private Investment which will counter balance the inflation through higher production efficiencies.Govt should also look at fiscal incentives apart from PLI, to bring in Private Capex through Investment allowance and accelerated Depreciation schemes for the short term covering the next couple of years.

With dark clouds of high interest rates and liquidity tightening looming all over the globe ,GOI has extremely difficult task cut out for itself  inorder to maintain high GDP growth of 6%+ in FY 24.

Union Budget musings!

 Only unbridled Govt borrowings can crowd out Private investment.FS Somanathan clearly articulated in the post budget press conference that Nominal GDP growth will b 10.5% and incremental Govt Borrowings will grow only 8% or less & therefore, not a problem. As rightly said, Govt Capex will have multiplier effects and will crowd in Private investments.

Capex is 3.2% of GDP which  means about 55% of Fiscal Deficit of 5.9% will be used for Capex.That will have huge impact on job creation and other multiplier ripples across the Economy. Capital expenditure is estimated to be Rs 10,00,961 crore (37.4% increase over FY22-23).  The increase in capital expenditure is due to an increase in capital outlay on transport (including railways, roads and bridges, and inland water transport) by Rs 1,28,863 crore (36.1% increase)

Revenue deficit in 2023-24 is targeted at 2.9% of GDP, which is lower than the revised estimate of 4.1% in 2022-23(original BE for FY 22-23 was 3.8%).  Fiscal deficit in 2023-24 is targeted at 5.9% of GDP, lower than the revised estimate of 6.4% of GDP in 2022-23.  While the revised estimate as a percentage of GDP is the same as the budget estimate, in nominal terms, fiscal deficit would be higher by Rs 94,123 crore (increase of 5.7%) in 2022-23.  Interest expenditure at Rs 10,79,971 crore is estimated to be 41% of revenue receipts.The target for primary deficit (which is fiscal deficit excluding interest payments) in BE 2023-24 is 2.3% of GDP as against 3% in RE for FY 22-23(BE was 2.8%).

All the trajectories of deficits are on a downward trend since the end of pandemic and rightly so in tandem with Monetary tightening happening under Monetary Policy of RBI.But the downside is growth may get hampered may be after a long of 4to 6 months when Global headwinds are also expected to hit the demand in the Indian Economy.

Therefore front loading of Capex by GOI is the right strategy to keep up the demand momentum in the domestic economy. By the time Global slowdown or recession starts gnawing at our economy, RBI may have to tweek its Monetary Policy accordingly to shore up the sentiments.

In all probability, this situation has to be watched out for during second half of FY 23-24 as things stand and if El Nino plays out leading to deficient monsoon little earlier also.

Govt should keep an eye on Pvt Sector Capex growth minus the PLI scheme and also focus on MSME Investment growth. If possible, MSME and Pvt sector outside PLI scheme should be supported by increasing Depreciation rates for the next couple of years as an adhoc measure.

This will be mostly revenue neutral since any loss through higher depcn rates will be offset through tax revenue from higher economic activity.