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Several brokerage houses and forecasters have narrowed their outlook on India’s growth for the current fiscal year. Among world organizations, the International Monetary Fund (IMF) has the most optimistic projection. He sees India’s GDP for fiscal year 2011 growing at 1.9%, below the 5.8% projected in January. Barclays and Fitch Ratings have linked it to 0.8% and Goldman Sachs to 1.6%.
It is feared that a large fiscal expansion, essential to get the economy back on its feet, but in a time of exhausted coffers, could invite a downgrade of the ratings. Japanese financial services giant Nomura warned on April 30 that S&P could consider a downgrade. The same day, Fitch warned that India’s sovereign rating could be under pressure.
S&P, the most wanted of the rating agencies, affirmed India’s sovereign rating at “BBB- with a stable outlook” in December. After reducing its outlook to “negative” from “stable” in November, Moody’s Investors Service warned today that India’s sovereign rating could be lowered if its fiscal metrics weaken materially.
“The list of these eight sectors is ready. Reforms in some of them may need legislative changes, but preliminary work is being done to take those steps, “said one of the officials, naming pharmaceuticals (drugs and chemicals), electronic products (including mobile device manufacturing) and IT) and energy (coal and energy) as three of the eight sectors on the restricted list and declined to name other sectors as he is not authorized to speak to the media, adding that deliberations are happening at the levels highest in the Prime Minister’s Office (PMO).
In the past two to three weeks, while adhering to the rules of social distancing, Prime Minister Narendra Modi has met with several of his ministers and bureaucrats at least twice, including Finance Minister Nirmala Sitharaman, the Minister of Commerce. Piyush Goyal, the Minister of Road and Highway Transport Nitin Gadkari and Minister of the Interior Amit Shah. At these meetings, he underlined the need for reforms.
In a move that is in line with the government’s own reform path, a parliamentary committee recommended on April 23 that companies with up to 300 workers be allowed to fire people or close units without prior approval from the authorities. However, that recommendation has yet to become law.
“The Prime Minister has changed gear. He is aware of the unemployment caused by the blockade and realizes that reforms are the only way out. One of the reasons they are important is to persuade credit rating agencies that India is serious about making major structural changes to its economy, “said another source.
According to data released by the Indian Economic Monitoring Center, the shutdown caused one in four people to lose their job during March-April.
The source said the reforms will also aim to attract companies interested in moving their manufacturing out of China. A more than two-year trade war between the United States and China, which has seen them impose prohibitive tariffs on each other’s goods, has resulted in several companies moving their base from the world’s second-largest economy to Vietnam, Taiwan, and Thailand. India has made little progress in securing such investments. Modi is ready to change this scenario.
A May 4 Bloomberg report had said the government identified 461,589 hectares, almost twice the size of Luxembourg, to offer to those companies.
India is currently in the third phase of what, since March 25, has been the world’s strictest blockade to prevent the spread of covid-19. The 40-day blockade ending on May 3 was extended for another two weeks, albeit with relaxed conditions.
As the Center and states struggle to find ways to get out of the blockade, the greedy-induced blockade has dealt a severe blow to the Indian economy.
The Indian Manufacturing Purchasing Managers Index (PMI), compiled by IHS Markit, fell to 27.4 in April from 51.8 in March on a seasonally-adjusted basis, according to data released on May 4. Similarly, IHS Markit Services’ PMI fell to 5.4 in April from 49.3 in March, the biggest contraction in the survey’s 14-year history. A reading of less than 50 indicates contraction in business activity.
The government had announced in March a ₹The 1.7 trillion stimulus package that reached about 1% of the country’s gross domestic product, even as many other nations, with a blockade that was much less restrictive, have announced stimuli several times larger.
The aid package, under newly framed Prime Minister Garib Kalyan Yojana, aimed to alleviate the suffering of migrant workers, farmers, the rural poor and women. For its part, the central bank has also announced measures amounting to at least ₹4 trillion, to help banks, non-bank financial companies (NBFCs), mutual funds and individual borrowers by allowing them to defer payments on their loans for three months. Greater fiscal stimulus is now eagerly awaited.
According to a Bloomberg report from April 27, the government is considering a proposal to guarantee as much as ₹3 trillion loans to small businesses as part of a plan to restart Asia’s third largest economy. A May 3 Reuters report said the government will limit its total aid spending to around ₹4.5 billion.
“We have to be cautious as the downgrades have begun to occur for some countries and the rating agencies treat developed nations and emerging markets very differently,” the Reuters report quoted an unidentified government official as saying.
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