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Rating agencies follow 'poor, inconsistent' standards: Govt

Chief Economic Advisor Arvind Subramanian on Tuesday slammed global rating agencies for following "inconsistent" standards while rating India vis-a-vis China, saying they have not taken into account reforms measures like GST, which is a "poor" reflection on their credibility.

He said India has taken reform initiatives like FDI liberalisation, bankruptcy code, monetary policy framework agreement, GST and Aadhaar Bill.

"Despite all these achievements, it is very interesting that the rating agencies have not reflected this... We have shown (in Survey) what kind of inconsistent standards the rating agencies have.

"We call these poor standards because S&P said last year that there is no way they could upgrade India because of GDP and fiscal deficit," Subramanian said.

US-based Standard & Poor's (S&P) in November ruled out an upgrade in the country's rating for some considerable period, citing India's low per capita GDP and relatively high fiscal deficit.

"The actual methodology to arrive at this rating was clearly more complex. Even so, it is worth asking: are these variables the right key for assessing India's risk of default?" the Economic Survey asked.

India's government debt to GDP ratio stands at 68.5 per cent. Subramanian said S&P has rated China six grades above India and has held China's ratings steady since 2010 despite economic growth slowing to 6.5 per cent from 10 per cent. In contrast, India's has moved in opposite direction and growth has increased.

"Yet how did the rating agencies behave? They despite all these risky developments they did not downgrade China and our rating was maintained six notches below China. This is reflection on how these institutions work. You should question them," he said.

The pre-budget Economic Survey said S&P in December 2010 increased China's rating from A+ to AA and despite the "ominous scissors pattern" of Chinese economy, and declining growth has not downgraded it.

"In contrast, India's ratings have remained stuck at the much lower level of BBB-, despite the country s dramatic improvement in growth and macro-economic stability since 2014. These contrasting experiences raise a question: can they really be explained by an economically sound methodology?," the Survey said.

Subramanian said per capita GDP, which is a factor taken into account by rating agencies for upgrade, is a very slow moving variable

"If this is taken to be really key to ratings, poorer countries might be provoked into saying, 'Please don't bother this year, come back to assess us after half a century'," the Economic Survey, prepared by Subramanian, said. The practice of ratings agencies to combine a group of countries and then assess comparatively their fiscal outcomes shows India is an outlier because its high debt-GDP ratio and debt of 67.1 per cent are out of line with its emerging market "peers".

The survey said India is very different from the comparators used by the ratings agencies as many emerging markets are struggling.

"But India has a strong growth trajectory, which coupled with its commitment to fiscal discipline exhibited over the last three years suggests that its deficit and debt ratios are likely to decline significantly over the coming years.

"Even if this scenario does not materialise, India might still be able to carry much more debt than other countries because it has an exceptionally high 'willingness to pay', as demonstrated by its history of not defaulting on its obligations," it said.

The Survey said India also compares favourably to other countries on other metrics known to be closely related to the risk of default.

Note ban hits India Inc's biz confidence as sales plunge

Ahead of the Budget, a survey has revealed that India Inc's business confidence slipped to a four quarter low as demonetisation pulled down performance and clouded its assessment of the economy.

According to Ficci's latest Business Confidence Survey, the Overall Business Confidence Index (OBCI) slipped to a four quarter low of 58.2 vis-a-vis 67.3 in the last round as 4 out of 5 companies reported weak demand.

"The fall in overall index value was largely on account of the weakness that has gripped the performance of corporate India on account of demonetisation and their assessment of the current state of economy," the survey said. A decline was noted in the proportion of respondents foreseeing higher sales. About 46 per cent respondents said that they expect sales to increase over the next six months as compared to 62 per cent in the previous round.

The survey was conducted between December 2016 and January 2017 to capture the assessment of the current situation as well as gauge expectations regarding performance for the next six months. It drew responses from about 207 companies belonging to a wide array of sectors.

Notably, the outlook of respondents on employment generation worsened with only 18 per cent of the surveyed firms anticipating an increase in hiring in the coming six months as against 31 per cent in the previous round.

Digitalisation not a panacea, cash not all bad: Eco Survey

Sounding a note of caution on government's digital push, the Economic Survey on Tuesday said that digitalisation is "not a panacea" and cash is not all bad and stressed the need to forge a balance between both forms of payments.

The Survey, tabled by Finance Minister Arun Jaitley in Parliament, said transition to digitalisation should be gradual after taking full account of the digitally deprived.

"In the medium term, the impetus provided to digitalisation must continue...Digitalisation is not a panacea, nor is cash all bad. Public policy must balance benefits and costs of both forms of payments.

"...the transition to digitalisation must be gradual, take full account of the digitally deprived, respect rather than dictate choice and be inclusive rather than controlled," it said.

The Survey also emphasised that success of digitalisation would depend considerably on inter-operability of the payments system, and advised banks to facilitate and "not thwart" inter-operability.

"The success of digitalisation will depend considerably on the inter-operability of the payments system. The Unified Payments Interface (UPI) created by National Payments Corporation of India (NPCI) is the technology platform that will be the basis for ensuring interoperability," it said. The Survey further said: "But to ensure this, individual banks should facilitate not thwart inter-operability."

In a bid to curb corruption, the government has been pushing for greater adoption of digital payment mechanisms like debit/credit cards and mobile wallets in the country.

Estimates suggest that cash accounts for about 78 per cent of all consumer payments.

"By facilitating inter-operability (between payment systems), it will unleash the power of mobile phones in achieving digitalisation of payments and financial inclusion, and making the 'M' an integral part of the government's flagship 'Jan Dhan, Aadhaar, Mobile' (JAM) initiative," it said.

Based on data provided by NPCI, the Survey noted that the 'decline rates of transactions' for Aadhaar-enabled payments as of mid-January 2016 were nearly 56 per cent in case of transactions involving different banks. This is almost double that for transactions that involve the same issuing and remitting bank, it added.

It said a plausible reason for this differential could be that larger banks are declining transactions involving smaller remitting banks, while ensuring that transactions involving themselves are honoured.

8 core industries' Dec growth rises from 2.9% to 5.6%

Eight core industries register a growth of 5.6 per cent in December 2016 on the back of healthy output recorded by refinery products and steel. The growth rate of eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — was 2.9 per cent in December 2015.

It stood at 4.9 per cent in November 2016. The core sectors, which contribute 38 per cent to the total industrial production, expanded 5 per cent in April - December 2016 compared to 2.6 per cent growth in the same period last financial year, according to data released by the commerce and industry ministry on Tuesday.
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