Chief Economic Adviser (CEA) Krishnamurthy Subramanian on Tuesday said that international rating agency Moody’s projection of 6 percent growth rate is an “underestimate" as India has been “fiscally very prudent".
He said that Moody's needs to take into account India’s reforms while estimating the growth rate.
In an interview with CNBC-TV18's Shereen Bhan, Subramanian said, “We have always maintained that fundamentals of the economy are strong. We pushed Moody’s to see our point of view. The banking and fiscal situation is looking better. We made our case about the economic situation in India and convinced Moody’s. We pointed out that this year’s budget made a clarion call for reforms and assuaged the agency's concerns about future NPAs from retail and MSMEs."
“India’s potential growth rate is 7.5 percent. Also, if you look at the fiscal deficit and compare to peer economies, India has been really fiscally prudent and that will reflect in the debt sustainability ratios as well," he added.
Subramanian said that it is time international agencies take into account necessary conditions around the announcement of reforms. “Private Capex rates are clearly going up. Private capital investment in both services and manufacturing is picking up. India is the only country that was focused on supply-side measures. Despite rising commodity prices, India’s inflation is in control. Supply-side reforms will definitely spur private Capex," he said.
Last week, Subramanian had said that India will clock over 7 percent annual growth during this decade on the back of strong economic fundamentals. He also pointed out that the government is putting a lot of emphasis on capital expenditure as it has a multiplier effect.
The recent remarks came after Moody’s upgraded India’s rating outlook to ‘stable’ from ‘negative’. The rating firm, however, kept India's sovereign rating at 'Baa3' - which is the lowest investment grade, just a notch above junk status.
Moody's said the decision to change the outlook to "stable" reflects its view that the downside risks from negative feedback between the real economy and financial system are receding.
Moody's expects India's real GDP to surpass 2019 levels this fiscal year (April 2021 to March 2022), rebounding to a growth rate of 9.3 percent, followed by 7.9 percent in the next financial year.
"Downside risks to growth from subsequent coronavirus infection waves are mitigated by rising vaccination rates and more selective use of restrictions on economic activity, as seen during the second wave," it noted.
The US-based rating firm had in 2020 lowered India's rating from 'Baa2' with a 'negative' outlook, saying there would be challenges in policy implementation amid low growth and deteriorating fiscal position.
Watch video for the entire discussion.