The stock market has climbed dizzily, foreign exchange reserves are at a record high of $639 billion, portfolio inflows are on the rise again, and corporate bond issuances are on the rise, suggesting business recovery.
Global rating agency Moody’s has reportedly revised the outlook on India’s sovereign rating to stable from negative, citing receding risks to the economy, particularly from weakness in the financial sector. This should trigger action to boost growth, not complacency. Spend the higher capital expenditure planned in the budget. Operationalise the Credit Guarantee Enhancement Corporation, announced in 2019. The need is to activate the bond market, and not rely on banks for long-term capital. Encouraging active trading in corporate bonds will provide life to the primary bond market. A market to mitigate the credit, currency and interest-rate risks must also function smoothly for the bond market to thrive.
Moody’s rating remains unchanged at the lowest investment grade of Baa3. It said that, while the risks from a high sovereign debt burden remain, improvement in economic conditions will gradually ease concerns. Surely, when things are normalising, large-scale investments by the government would have a multiplier effect translating into higher growth. When the growth rate exceeds the rate of interest, government debt would fall as a proportion of GDP, and debt would be sustainable. Data for the first half of this fiscal suggests that India is well poised to pick up economic speed, boosted by the resolute vaccination drive. The IHS Markit Purchasing Managers’ Index for manufacturing and services rose in September, mobility indicators have improved, exports are up and GST revenues surged by 23%.
The stock market has climbed dizzily, foreign exchange reserves are at a record high of $639 billion, portfolio inflows are on the rise again, and corporate bond issuances are on the rise, suggesting business recovery. The government should not get complacent.