Yet to see full benefits of DeMo, GST: Ravi Bhatia, S&P
ET Now: Why has Standard & Poor's (S&P) been conservative on its outlook and rating on India at a time when Moody’s has upgraded its ratings? Despite the slew of reforms India has undertaken since 2007, we are still rated at the same grade as we were in 2007 i.e. just one notch above the investment grade.
Ravi Bhatia: We have balanced the country’s strong GDP growth and external record and improving monetary framework -- broadly the strength -- against our broad concerns such GDP per capita which despite the strong growth is still very low. We have affirmed the rating and the stable outlook. While the growth trajectory in the medium term looks good, we have also seen a couple of quarters of wobbly growth at the moment, partially attributing to the teething problems around the implementation of GST and the cash ban that happened earlier. Basically it is a combination of those factors. The outlook for India is stable.
ET Now: You mentioned demonetisation and you did say that the cah ban has taken a toll at least in two quarters. But unlike S&P, Moody’s believes that demonetisation did lead to formalisation and financialisation of the economy. Look at the amount of money that flew into mutual funds (MFs) or the insurance or corporate bonds! Has S&P failed to take note of that? Has it been a conscious decision or is it something that you are not going to take into account at all because demonetisation has disrupted the growth?
Ravi Bhatia: As I said, a couple of quarters have been affected both by demonetisation and the implementation of the GST in the short term, but the medium term prospects are good.
While the demonetisation should lead to more formalisation of the economy and widening the tax net in the medium term, we have not seen the full benefits of that. The same goes for GST.
But the medium term prospects are good. In terms of the rating, we have other concerns around the fiscal deficit and the low GDP per capita as well. It's a combination of factors.
ET Now: You spoke about low GDP per capita. That has been a bone of contention here in India. The government says that it is unfair to evaluate a country a sovereign like India on the basis of low GDP per capita because it is a developing country. It cites the example of Indonesia, which was upgraded seven times between 2002 and 2011, even though it had a per capita GDP of a little over $1000. On the other hand, India has been inching closer to $2000 now?
Ravi Bhatia: It is a combination of factors. The high growth rates that India is seeing are tied to, are possible at this low level of GDP. We give India credit for the very rapid GDP growth. When we look at the external data, India is looking increasingly strong. It's forex reserve numbers are really quite strong. It has more than six months of import cover. It is a combination of factors, there is no getting away from it. When we look on a comparative basis against all the other countries pretty much all the other countries in this BBB minus category India has the lowest GDP per capita and that is so that is what on a comparative basis what we see.
ET Now: But I will ask you a question on our debt to GDP ratio: Does this argument of high debt hold any water given our debt is entirely domestic? That is one of the things that said in critique of your status quo?
Ravi Bhatia: For a developing country with the GDP per capita levels that India is at, the debt stocks are still high. Also the interest payments as a percentage of revenues are still quite high for India. We look at the change in debt on a consolidated basis. The fiscal deficit is still sizable, if you combine the states and the federal level together. Yes, most of the issuances are in domestic currency with fairly long tenures. That is something we consider. That broadly is a good thing from a debt point of view. But there's no getting away from the fact that the debt stock is high.
ET Now: Fiscal deficit I understand is a key factor here. But why is there no consideration been given to the quality of fiscal deficit, given the government is borrowing to invest in public sector program?
Ravi Bhatia: We have considered the whole reform effort. We see the benefits of that in the strong growth story. We have mentioned the bank recapitalisation and said broadly most of the reforms that have been done are positive and in the right direction.
On the fiscal deficit front, some of it has been good, some of it not. If you look at the state level, there are issues around farm loan waivers for example in UP where they actually had to cut back on other factors to compensate for that. It is not all what you would call investment spending, which would generate higher growth. So it is a mixed bag. But we considered it and we are looking at it alongside everything else.
ET Now: How much do these BBB minus ratings really matter in terms of inflows?
Ravi Bhatia: It is a high rating. It is in investment grade. We look at the fundamental analysis, we look at from a broad macro picture and the market can deviate from us for various reasons, on relative pricing compared to other EMs. But we look things on a fundamental basis. That is our assessment. What we are seeing is that ratings continue to be very relevant to the market.
https://economictimes.indiatimes.com/markets/expert-view/yet-to-see-full-benefits-on-demo-gst-ravi-bhatia-sp/articleshow/61793725.cms
Tidak ada komentar