India can not be looked at through prism of industries & large urban centers alone

Sudhir Kumar Rakesh

     I.A.S. (Retd.)

Patna : The familiar scenario is unfolding once again. Moody’s Investors Service has downgraded the long-term foreign currency and local currency rating of India from Baa2 to Baa3. They have retained India’s rating as investment grade but have classified the outlook as negative.

Respected commentators in India are terming this message as worrisome and look at the development with a lot of concern recalling that Moody’s had upgraded its India rating in November 2017 on the expectations of economic reforms. Now the rating downgrade of India is not because of COVID-19 related projections rather it is based on the analysis that the policy making institutions in India may not be able to carry out the institutional and financial sector reforms. This may lead to financial sectors stress and the consequent harm to the fiscal situation.

India was assigned Baa2 rating in November 2017 by Moody’s, which they have now downgraded to ‘Baa3’ on June 1, 2020. This rating is the lowest investment grade rating and is just one notch above the “Junk” status. On the basis of its analysis, Moody’s have further estimated that India’s GDP is going to shrink by 4 percent – first full fiscal contraction in more than four decades.

Moody’s is a respectable name. So are many others which have also raised questions with regard to India’s ability to sustain its economic growth. It is being pointed out that the GDP growth rate of 3.1 percent in the last quarter of Financial Year 2019-20 is the lowest in the last 11 years or so. Based on this, projections are being made that India may have a negative growth rate of about 4 percent in the year 2020-21.

These are all projections based on certain economic indicators and applied to the India growth model. The economic models which have been used for analysis of the India growth story till now have certain assumptions.

The experts as well as Rating Agencies are supposed to be quite knowledgeable in their respective fields. However, this time they need to take certain important change factors into account. My humble submission is that they also pay attention to the following:Ø The ‘ceteris peribus‘ assumption is not going to work this time, because other things are not going to remain the same in India;

Ø India can not be looked at through the prism of industries and large urban centers alone. India analysts have to start looking at sectors other than industries and places other than urban centers. If not, the analysis has every chance of becoming lop-sided;

Ø The percentage of population of India that lives in mega urban centers vis-a-vis the population living in and working from small urban centers and villages has to be correctly accounted for. Simultaneously, it will have to be assigned the appropriate weightage;

Ø The changing global situation and the tremendous goodwill that India is commanding at the moment, is also not being accounted for. A basic fact which every student of commerce and every business person knows is that on the Assets side of any balance sheet, the first and most important item is “Goodwill”. How and to what extent “Goodwill” can be monetised depends on the person/entity running the business and commanding that goodwill;

Ø How the agriculture sector of the Indian economy has silently become the backbone of the economy during the Corona pandemic, should also be studied along with its likely impact on the Indian GDP. While the GDP growth rate during the last quarter of Financial Year 2019-20 was 3.1 percent (a low during the last 10-11 years) during the same quarter the growth rate of agriculture sector rose to 5.9 percent (compared to 1.6 percent during the corresponding quarter of the last Financial Year 2018-19);

Ø As a result of the recent bumper Rabi crop, the Central and State Governments had already procured Wheat, Gram, Arhar, Mustard etc. worth about Rs 80,000 crore till May 2020. Moreover, first installment of Rs 2,000.00 per farmer family of PM Kisan Samman Nidhi Fund, totaling about  Rs 18,000 crore has also been transferred to about 8.89 crore farmers of India. Thus a total of about Rs 98,000 crore has already been received by the farmers of India. This money is going to play its part in creating a massive demand push in the rural/agrarian sector of India;

Ø The official twitter handle of the Ministry of Finance has announced (on 02.06.2020) that around 42 crore poor people received financial assistance of Rs 53,248 crore under Pradhan Mantri Garib Kalyan Package;

Ø As informed by the official twitter handle of the Finance Minister of India on May 19, 2020, loans worth Rs 6.45 lakh crore were sanctioned by public sector banks between March 1 and May 15, 2020, for 54.96 lakh accounts from MSME, Retail, Agriculture and Corporate Sectors – a notable increase compared to the Rs 5.95 lakh crore sanctioned as of May 8, 2020;

Ø Again, the official twitter handle of the Finance Minister of India announced on May 19, 2020, that public sector banks sanctioned over Rs 1.03 lakh crore as emergency credit lines and working capital enhancements in the period between March 20 and May 15, 2020, which is a substantial increase over the Rs 65,879 crore that had been sanctioned up to May 8, 2020;

Ø According to Union Agriculture Ministry data, released on April 24, 2020, area sown to paddy had increased by 37.70 percent to 34.73 lakh hectare in the Kharif (Summer) season of the 2020-21 crop year. Farmers had planted paddy in 25.22 lakh hectare area in the previous year during the same period;

Ø The IMD has forecast a normal southwest monsoon during June-September, 2020.

Ø The foreign exchange reserves of India are at an all time high of $493.48 billion, as reported by the Reserve Bank of India;

Ø Even during the most stringent month of lockdown in India – April 2020 – the GST collection was around Rs 43,000 crore against the collection of Rs 1,13,865 crore during April 2019. If during the most stringent period of lockdown GST collection was at such a level, it only points towards the excellent recovery in economic activity level in the months to come.