oppn parties The Rating Downgrade By Moody's Was Expected

News Snippets

  • University vice-chancellors in West Bengal decide not to hold final-year examinations despite UGC prod, will instead go by the state government advised 80-20 formula where 80% will be marked on performance in past semesters and 20% on internal assessments in the final semester
  • The Centre wants the ITI and other top Indian firms to bid for 5G as Chinese firms Huawei and ZTE are not likely to be allowed to participate
  • India and China agree on total disengagement to return to peace ahead of the next round of military talks
  • The Supreme Court allows delivery of summons and notices via WhatsApp and email, but questions remain on proof of actual receipt
  • National Investigation Agency says the proceeds from the Kerala gold smuggling case could have been used for terrorist activities
  • Four Maoists shot dead in Valmiki Tiger Reserve in Bihar
  • Despite localized lockdown, Covid cases continue to rise at an alarming rate in West Bengal. Newer areas brought under containment zones in Kolkata
  • ICSE, ISC results declared, Average scores in the English paper, 20% lower this year than the average in most years, pulls down the aggregate for most candidates
  • IIP contracts by 35% in May. Manufacturing goes down by 39.3%
  • Row erupts over CBSE's decision to reduce the syllabus by 30% this academic year due to the disruption caused by the pandemic. Experts say several lessons that the ruling dispensation does not like are being removed
  • Gangster Vikas Dubey's nephew killed in an encounter by UP police who also pick up his key aide Raju Khullar and his son Adarsh
  • MHA sets up an inter-ministerial committee to probe the alleged financial misdeeds of three trusts linked to the Gandhi family
  • Actor Jagdeep, most famous for his Soorma Bhopali act in Sholay, passes away
  • Pakistan says Kulbhushan Jadhav has declined to file a review petition and will stick to his mercy plea. India calls it a farce
  • India to keep a strict vigil to confirm that the Chinese are abiding by the deal on the pullback at the LAC
Amitabh Bachchan and his son Abhishek admitted to hospital for coronavirus
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The Rating Downgrade By Moody's Was Expected

By Linus Garg
First publised on 2020-06-03 19:11:06

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

The downgrade by Moody's was expected. Both S&P and Fitch had rated India a notch lower than Moody's long time back. Even before the pandemic, the Indian economy was beset with many problems and was in the doldrums. Demand was weak and despite the best efforts of both the government (pushing money in the hands of people) and the industry (marketing efforts, including discounting), there were no signs of it picking up in a hurry. Manufacturing was contracting in successive quarters and inventory was piling up with dealers. In such a scenario, the lockdown due to the pandemic was the last straw. Economic activity came to a standstill from the end of March and resumed hesitatingly only in May. No rating agency would give any leeway and Moody's has accordingly downgraded India's sovereign rating.

With incomes drying up across the board, demand is unlikely to pick up in the July-September quarter. If the pandemic continues to create problems (cases in India are expected to peak in July and that would create another scare in the minds of the people), the festival season in the October-December quarter is also expected to see a muted consumer response this year. A large number of people, it seems, have decided to hold purchase decisions. They have decided to wait till things get normal again and till that time only the most essential things will be bought. This will put pressure on dealerships (even before the pandemic, two-wheeler sales had plummeted to such an extent that there were reports of dealers downing shutters across the country) and manufacturing will contract further.

Moody's has clearly explained that it expects government debt to increase substantially. It says that there might be a 12 percent increase in such debt from 72 percent of the GDP in 2019 to 84 percent in 2020. What is more worrying is that Moody's has warned that since the economy is unlikely to recover in a hurry, the government will collect lower taxes and its capacity to service the debt will diminish. It expects the debt to rise even higher in the medium term. This negative outlook means that there might be further downgrades by all rating agencies if the economy does not show signs of recovery soon. Although the size of the population makes India an ideal economy for a fast recovery, people have to have money in hand to make that happen. Given the job and salary cuts now being witnessed, it will take time for demand to pick up and recovery will be slow and painful.