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00:00 (intro music)
00:06 Hello and welcome. The big story at this hour on NDTV Prophet is the S&P ratings upgrade to India's outlook
00:16 to positive from stable while S&P has retained its BBB minus status.
00:23 I am Pallavi Nahata and I'm joined by Muralidhar Swaminathan for a special show on the ratings, the outlook change.
00:31 To get us a perspective on the big news, we're also joined by Sanjeev Sanyal, member of the Economic Advisory Council.
00:38 So I'll quickly sum up some of the key features of the press note that S&P has published a short while back.
00:46 It's focused on India's robust economic expansion, continuing policy, the composition of government spending
00:55 that's changed to an increasing share going to infrastructure.
01:00 S&P has also stated that they may raise the ratings of India's fiscal, if India's fiscal deficit narrows meaningfully
01:08 such that the net change in general government debt falls below 7% of the GDP on a structural basis.
01:15 Also, if they observe a sustained and substantial improvement in the central bank's monetary policy effectiveness.
01:22 Now, while this is not a ratings upgrade, it is a change in outlook and definitely comes as a positive for the Indian economy.
01:32 Mr. Sanyal, this is something that we've been watching out for for quite some time now.
01:37 What are your early takeaways from this change?
01:42 Well, it's welcome that S&P and other rating agencies are noticing our strong and robust economic and macroeconomic indicators.
01:55 So it's good that they have put us on a positive watch.
01:59 But let me say that by any objective criteria, India should actually be rated one, if not two notches above where it is right now.
02:08 So in a sense, they are behind the curve.
02:12 And if you look at Indian paper that, you know, corporate paper of Indian companies that float abroad,
02:20 you will see that they are almost always much, much tighter than similarly rated sovereigns.
02:29 So the point I'm making is that India is much better position even than what S&P is making out to be.
02:39 Right. You know, we have been waiting for this for many years.
02:44 And finally, the first small step, I would say, has been taken, you know, considering the kind of growth that we have achieved,
02:51 the reforms, the fiscal discipline and you name it.
02:55 You know, we are firing from all cylinders and this has come just at a time when there is a confluence of many positive factors.
03:04 One of them being inclusion of the JP Morgan index, which is a matter of time.
03:08 It will start flowing in second and more important, the RBI's dividend, which is huge.
03:14 That is a second one. And the third one being the above average monsoon that is coming up.
03:21 Now, in this perspective, how do you think we can move faster and meet the targets that S&P wants us to reach?
03:30 So, first of all, you know, things like monsoons and things like that should not even enter into the equation.
03:37 You have to remember what a sovereign rating really is. It is our ability to repay foreign debt.
03:46 That is all it is, nothing else. It is not a general comment on our economic performance or any other thing.
03:53 Now, in that context, let me point out that India is actually a net creditor country.
03:59 We have about 635 billion worth of external debt and we have about 650 billion dollars worth of reserves, foreign exchange reserves.
04:10 So, in that context, look, what is the danger that we are going to default? Very, very low.
04:17 They seem to be somewhat concerned about our fiscal and they always make a fuss about it.
04:22 Well, let me point out that almost all our debt on the fiscal front, government debt is in rupee denominated.
04:29 This is the argument they make when it comes to, say, for example, the US.
04:35 They'll say, you know, yes, the US is adding a trillion dollars worth of debt every hundred days, but it is all in dollars.
04:42 Well, we have our debt is also in rupees. So what's the point they're making?
04:47 And on top of all of this, our GDP growth rate is vastly higher than anybody in the world and certainly higher than our peers in triple D minus.
04:57 It is our virtually every macro indicator, including the state of the banks, is vastly superior to anybody in our same level in the sovereign ratings bracket.
05:12 Some of the countries in that sovereign rating bracket like Greece were recent defaulties.
05:18 So, you know, I don't see why we shouldn't aspire to at least one, if not two upgrades.
05:25 Right. So one, if not two, is a very they are behind the curve very clearly.
05:31 Now, getting down to specifics, do you think this RBI dividend, which is a huge bonanza for the government, I guess, roughly one lacrore extra.
05:42 How will that help cushion any additional reforms that we want to take?
05:48 I think that's going to be an important pillar for the government, you know, in terms of fiscal deficit, in terms of revenue.
05:54 And how will that change the macro picture? See, we are a big economy with very large inflows of revenue.
06:03 The RBI dividend is based on a formula which you will remember that the DeMille Jalal Committee had come up with.
06:10 So it is a mechanical calculation. And while it helps, of course, that we get some extra dividends in, it doesn't significantly change things.
06:20 I mean, remember on a monthly basis, our GST collections tend to be now somewhere close to the two lacrores benchmark.
06:32 So, you know, a one time extra one lacrores doesn't completely change the dynamics.
06:37 It's welcome. But I would argue that we now are on a different path altogether in terms of revenue collections and from not just, you know, indirect taxes from GST.
06:48 But also if you look at the direct taxes and so on. So we are doing well.
06:53 Our debt to GDP ratio from our public debt is coming down systematically.
06:57 Our fiscal deficit is slowly coming down. And I think consequently, we are in a good place.
07:06 OK, Mr. Sanyal, so while you did mention that you do believe that the ratings agencies are behind the curve,
07:12 they have constantly been bringing up, of course, fiscal deficit and India's public debt,
07:18 especially compared to other developing economies and all of those factors.
07:22 So given that those are still going to be parameters that they're going to be watching out for before we see a change in ratings, finally,
07:30 what is the trajectory, according to you, in terms of fiscal deficit?
07:34 We're, of course, seeing clear signs of a downward trajectory.
07:37 We're expected to continue and remain on course or maybe perform better in terms of fiscal consolidation.
07:43 In terms of public debt, what is the government targeting at this point?
07:48 How do you see it playing out going forward?
07:52 I think we have made it very clear and, you know, the Honourable Finance Minister has also made it very clear that we will systematically see the debt to GDP ratio come down.
08:02 It obviously spiked up because of an unforeseen circumstances, because of the COVID situation, which is something every country in the world faced.
08:11 But since then, it has been on a systematic basis coming down.
08:15 And by the way, even then, our consolidated debt to GDP ratio is much lower than that of countries rated in, you know, triple A, double A, single A countries,
08:28 whether it's the US or Japan or European countries, our debt is much, much more sustainable.
08:34 So I don't know why we should be in this game of being compared to other developing countries.
08:40 Our macro indicators are all better than theirs on every account.
08:46 And our ability to repay our debt is much better than theirs on every account.
08:50 Right. One very important point that comes to mind.
08:54 In fact, the rating agency has mentioned this in the note.
08:58 Let me read out. Surging central expenditure, CAPEX, by the central government and to some extent by state governments will help to spur investment and construction activities based on budget plans for 2025, fiscal 2025.
09:13 Our expectation of strong revenue growth, this support is likely to continue.
09:18 So what are your thoughts on CAPEX? Strong consumption, consumer sentiment.
09:25 Well, I mean, this continues with what we have talked about for some time, which is that we need infrastructure.
09:34 And this government has been very committed to creating infrastructure.
09:38 And we continue to be so. So if you read our, you know, budget speeches and budget documents,
09:46 you name it, which every form of infrastructure has seen big increases in spending.
09:53 So I think that will continue and we are committed to it.
09:57 Do you think the private sector is slightly behind in terms of CAPEX?
10:02 Well, they may have for some time, but I think in recent, the last one year or so, you can clearly see an increase in private sector participation.
10:12 And I know for a fact that there are ever larger plans coming in from both the private sector as well as from foreign direct investments.
10:21 So many of them, by the way, are already on stream.
10:25 They're coming on stream in various ways. So in the next year or two, expect to see very strong private sector investment.
10:33 All right. So, you know, Mr. Sanyal, while we've seen a change in outlook and we're all waiting for a change in the ratings upgrade,
10:40 it is, of course, difficult to say when exactly and how that will pan out.
10:45 But given the given India's current macros and given our GDP growth, given that we have so many factors working in favor of us,
10:56 do you think it's possible that it could happen as soon as possibly a year down the line?
11:01 And I know it's a little bit of a speculative question, but we still want to know your thoughts on that.
11:08 Well, obviously, it depends on the rating agency, so I can't look inside the heads.
11:11 As I said right in the beginning, they are actually behind the curve.
11:16 Our macroeconomic indicators clearly indicate one, if not two upgrades, if you did this objectively.
11:26 And I have argued this for some time, that many of the ways in which the ratings are done, sovereign ratings are done, are now outdated.
11:35 For example, they tend to separate out the developed and the developing countries and gauge them separately.
11:42 Why? I mean, all you should really care about is our ability to repay.
11:46 Why should we not have the debt to GDP ratios of all countries, irrespective of whether they are developed or developing, be counted on the same parameters?
11:58 I mean, there was a time when developed countries generally had better macro parameters.
12:04 So I understood that you thought of them somewhat differently and gave them a special status.
12:08 But why today, when it's not at all obvious that they have some special status?
12:15 In fact, India is now already the world's fifth largest economy.
12:20 We will be in the next 24 months becoming the world's third largest economy.
12:25 Now, never in history have you had a situation where the world's third largest economy is being rated at triple B minus.
12:34 So I think we will see the upgrade faster than you think. And even then, they'll probably be behind the curve.
12:40 My last question to you, Mr. Sanyal, is, you know, the markets are recognizing, investors are recognizing, big companies and multinationals are recognizing the potential.
12:50 Very clearly, we are, the prime minister himself has been talking about the 100-day program.
12:56 What is it that one can expect in terms of the big takeoff that we are all waiting for?
13:04 Well, there are a lot of things going our favor. And, you know, last year, the economy grew at 8 odd percent, which was, by the way, stronger than we had anticipated.
13:16 But something in the range of 7 percent and sustained over long periods of time is the real game.
13:22 Now, obviously, occasionally the world economy will be in a position to allow us to export our way to higher rates of growth.
13:30 That is not the situation we are right now. The world is in a much weaker situation.
13:34 But we will get those two and those situations we should grow at 8 to 9 percent, maybe.
13:40 But the point I'm making is this game is not about growth in any one year. It is about compounding it over, say, 25 odd years.
13:50 Now, when you're doing this, a very important part of it is not to get overexcited by growth in any specific time and jeopardize the macroeconomics.
14:00 And you may have noticed that this government is absolute macroeconomic conservatives.
14:05 Even at the height of COVID, we were very careful about fiscal and monetary expansion.
14:10 So this is something that is important that we are doing, which is somewhat different from other countries may have done.
14:15 I mean, what you don't want to happen is to have with us what happened in Southeast Asia.
14:21 If you go back to the 90s, Southeast Asia, countries like Thailand, Indonesia were that time thought to be the tigers.
14:28 You will remember that. And they would see these very high growth rates. And then they slipped up in the 1997, 98 crisis and never quite came back.
14:41 And so why that happened? Well, because you see, they did not adequately pay attention to the macros, particularly to their financial sector.
14:53 And once you get thrown off that, then you see this compounding process gets thrown off and it takes years to come back on stream.
15:01 So an important lesson from that is that you have to make sure you are a macroeconomic conservatives.
15:09 Make sure inflation remains within the 2 to 6 percent range. Make sure that foreign exchange reserves keep rising commensurately.
15:18 Do not get overexcited by, you know, advice from various US based economists on how much we can pump this economy.
15:28 You have to on the ground make an assessment about what is macroeconomically stable and make sure the banking system is kept in good nick.
15:38 Make sure the insolvency and bankruptcy process keeps working well and keep doing supply side reforms.
15:46 Build infrastructure, encourage the foreign and domestic investment and do the process reforms that keep allowing for microeconomic efficiency gains.
15:58 All right, Mr. Sanyal, one quick question before we let you go.
16:02 So, you know, from the government's perspective and from the perspective of corporates raising funds abroad,
16:08 the while the change in outlook is a boost to sentiment, does it change much on the ground?
16:17 I mean, of course, it is sort of a pathway to a ratings upgrade as well.
16:22 But given some of the factors that we've discussed in the course of our conversation, what does this mean?
16:28 Well, on the margin, it means it's a good signal. So it's in itself, it doesn't mean very much.
16:35 It is just a signal that rating agencies who watch these kinds of things are appreciating the economic performance.
16:46 But it is only one of many signals. There are multilateral agencies like IMF, World Bank also who write about it.
16:52 There is the media. There are. But ultimately, what matters is what investors do in the long run.
17:00 So whether it is Indian companies and their behavior, foreign investors, both direct and in the portfolio,
17:10 how they behave over the long term, and of course, ultimately, our own economic performance.
17:14 So it's good to be given some certificates by rating agencies.
17:20 But ultimately, what matters is that the people who put money on the ground or in the markets, what their behavior is.
17:32 And by and large, over the last few years, they have been very, very positive on India.
17:37 And you've seen sustained inflows, despite the fact that you've had a lot of turbulence abroad.
17:43 Do remember that we had, of course, the entire COVID episode. Then we saw massive increases in interest rates,
17:50 which was, you know, they went up, really spiking up, and they have not come down.
17:55 So they have remained at those very elevated levels because inflation has been an issue in the US and also in other countries, but particularly in the US.
18:04 So under those circumstances, these are, you know, and of course, not to forget the two wars, spike in oil prices.
18:11 So we have kept the ship on even keel through very turbulent waters.
18:17 And I think the appreciation in the investor community, which is ultimately the people who invest, that is being good.
18:29 And yes, you know, this is also good. Presumably this will be followed up by actual sovereign upgrades.
18:37 Then that will also be even better.
18:40 So on Friday, will we have reasons to smile again when the GDP numbers come out?
18:47 I know you cannot disclose, but should we be ready to celebrate?
18:53 That I'll let you judge when it comes out.
18:56 Okay. On that nice note, thank you so much, Mr. Sanjeev Sanyal, for joining us and taking us through this special thoughts and perspective from you.
19:06 Thank you very much. So what a day it has been, you know, I think the markets were worried about what positions to take and stuff like that.
19:20 Here comes a big news, you know, S&P recognizing the fact that we are on the road to upgrade is something very big.
19:28 So though it's just the outlook upgrade, but I think setting a very clear timeline of 24 months,
19:35 which I think somewhere they know that we should be able to achieve that target, maybe get closer.
19:40 It's a matter of time. I think that's a big positive.
19:43 Absolutely. And like we were discussing, you know, just outside the newsroom as well.
19:49 This is something that along with a lot of economists, you have also been batting for.
19:55 You have been very vocal about the past few months, the fact that this was long coming.
20:02 And this is like Mr. Sanyal too said, definitely a boost in sentiment and also the kind of signaling, you know,
20:12 some kind of a validation to, you know, for the government as well as investors,
20:16 along with a whole host of other economic indicators that we've been tracking.
20:21 Economic growth, of course, continues to remain resilient. The RBI reserve that you mentioned has given a boost to the government's fiscal consolidation program.
20:32 We continue to expect policy continuity, a whole host of factors working in India's favor
20:40 and possibly laying down the setup for a possible ratings upgrade sooner rather than later, as Mr. Sanyal pointed out.
20:52 OK, on that happy note, let's thank all our viewers. Thank you, Pallabhi, for joining us. Thank you, viewers.
20:59 Thank you, viewers.