By Aurobindo Das
You love them, you hate them; but you cant live without them.
Rating agencies are a force to reckon with. The math is simple. A sovereign upgrade can make or mar your fortunes, after all.
Lets stretch it a little. A higher credit profile is always music to the ears of investors. It means better credentials and makes a nation more attractive to return-hunting investors.
That brings us to India. Fitchs 'no' to a credit rating upgrade has come as a heartbreak for many. And that's for the 12th year in a row! Interestingly, rival Moody's gave the country its first sovereign rating upgrade since 2004 as recently as last November. S&P is still sitting tight.
The bottom line is, S&P and Fitch still have India at the bottom of their investment grade whereas Moodys places the country a notch higher.
Where India stands
# S&P >>>>>>> BBB-
# Moody's >>>> Baa2
# Fitch >>>>> BBB-
Confused? You cant be blamed. The signals are such. It all boils down to who sees what.
But there are certain hard facts you cant wish away.
What works for India?
A strong growth outlook: India has taken back the tag of the fastest growing major economy from China. It grew at 6.6 per cent in 2017-18. Growth will rebound to 7.3 per cent in 2018-19 and 7.5 per cent in 2019-20, said Fitch in a statement.
Favourable external balances: Foreign reserves are swelling and can cover 8.3 months of current external payments.
CAD: True, red signs are flashing again. But things look manageable.As for current account deficit, India still has a breather.
What is coming in the way?
High debt: General government debt works out to 69 per cent of GDP in 2017-18, according to Fitch. And that's a high level, by any yardstick.
Fiscal deficit: The government is still to get its house in order. The rating agency is particularly critical of this score. Fiscal deficit target of 3 per cent as mandated by the Fiscal Responsibility and Budget Management (FRBM) Act looks some way off.
Structural issues: There are structural factors too, including governance standards. The rating agency made a mention of "still-difficult, but improving, business environment".
But let's be fair and give credit where it's due. The government is on the job to gradually open up the economy to foreign investors. Allowing 100 per cent FDI in single-brand retail through the automatic route since January 2018 only buttresses the point.
The other Samaritan
The thinking at Fitch is that the Reserve Bank of India is doing a great job, building up a solid monetary policy record. Consumer inflation has been well within the target range of 4 per cent since the start of the MPC (monetary policy committee) in 2016.
A high-stake game?
Whichever way you slice it and dice it, the signals are conflicting. In other words, it's a treacherous track when it comes to the business of awarding credit rating. Better run with care.