By retaining India's rating S&P has taken a balanced view of the economy

A lot of uncertainty over India’s sovereign rating has been cleared by S&P which has retained the BBB– grade with stable outlook. After Moody’s had lowered India’s rating to a similar level earlier with negative outlook there was debate on how the other agencies would react. The view taken by S&P appears to be more balanced as it has factored in the challenges and opportunities that the country faces but takes a different view that the economy will regain poise in FY22 and grow by 8.5 per cent after falling by 5 per cent this year. It is certainly more sanguine about the prospects given the strong fundamentals which can help to withstand the Covid-19 impact.

Lets us see the positives that have been highlighted by the rating agency. Three things stand out. First growth prospects appear to be above average post Covid-19 which is realistic. Second, the external situation is very good. Contrary to expectations in FY20 and the shutdown, the forex reserves have been moving upwards towards the $500 billion mark. Quite clearly this has been enabled by both the CAD coming down and an increase in capital inflows especially through the FDI and ECB routes. This has strengthened the balance of payments and made India fundamentally strong on the external account. Third the CRA has been appreciative of the evolving monetary situation where the RBI has been more than proactive ever since the shutdown has been announced to smoothen the flow of funds across sectors and create a meaningful time table. However, three factors remain in the concern zone. The first is the state of the financial sector.

This probably holds for all countries which have been providing room for borrowers through moratorium as well as extension of credit lines. There is concern that this can mount at some point of time if the economy does not perform. While FY21 will not enter the picture, it should be realised that if the economy does not bounce back in FY22 the NPA issue will resurface for sure which has been highlighted by the agency. The second is the labour market. Here there has been a conundrum posed with the migrant issue not yet being resolved as jobs have been lost that are required. Further non-commencement of business also means that there can be a further fall in employment which can be a tricky issue during the recovery phase. Some states have allowed for layoffs which though good for business can have other social implications for the government.

S&P has also highlighted the fiscal stress that lies ahead which is important because in the times of Covid-19 all governments have been more flexible with their targets. The challenge for India really is that while the government has been quite tight fisted in the area of expenditure, it has little control over revenue generation. The economic package is more through the financial system which is a positive for the fiscal numbers. The budget has taken on only relief work and not gone overboard in spending. However, expected sharp fall in revenue will keep the fiscal deficit of the combined government in the double digit zone. The challenge is to get it back on course in FY22. The message really is that growth in FY22 will be critical for any further rating action and this in turn will guide the health of the financial sector as well as fiscal balances. The government for sure is aware of these issues and would be tackling them appropriately.

Business Standard, 11th June 2020

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...

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