It’s the real economy

It’s the real economy

Context:

• Moody’s has upgraded the Government of India’s local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive.

What are the benefits from the upgrade?

• The higher rating for India signals a lower risk grade for the government’s debt.
• It also lowers the cost of raising it.
• Other borrowings benchmarked to the government also stand to benefit.
• The likelihood of revisions by other rating agencies has increased.

What are the factors of concern?

• Even though there has been a significant growth, but non-agricultural production, investment and consumption in the economy is not doing well.
• It’s the same with infrastructure and construction.
• Consumer and investor sentiments haven’t got any better.
• Capital goods and consumer durables output was lower in the first half of the year than that in the same period last year, as production contracted.
• Festive and post-harvest season spending was expected to boost demand, but it remained to be weak.
• The industrial performance this year so far is weaker than 2012-13, the worst year growth-wise under the United Progressive Alliance (UPA) government.

What is the scenario for exports?

• Exports had been showing encouraging signs of recovery.
• But as for a month, there has been a slight decline in the employment-intensive sectors of leather, gems, jewellery, handicrafts, readymade apparel and carpets.

Factors for the decline:

• Exporters blame the break in the trend on a liquidity crunch owing to the infirmities in the goods and services tax (GST) system.
• They complain that their refund claims were not released for four months.
• Smaller firms with limited access to working capital have taken.

What is the way ahead?

• The National Democratic Alliance (NDA) government will have to preserve its fiscal rectitude and encourage States to shun populism and adventurism.
• If corrective steps are not taken, at the current rate of loss in industrial growth momentum, this year’s result may turn out to be worse.

What is Moody’s?

• Moody’s is an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets.

What is credit rating?

• Credit rating is the assessment of the credit worthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
• A credit rating can be assigned to any entity that seeks to borrow money – an individual, corporation, state or provincial authority, or sovereign government.
• Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor’s or Moody’s