9th November 2019
TOPIC: Indian Economy (Paper III)
Discuss the need for centre to push harder for reforms as Moody’s has flagged known risks and rated India down from stable to negative.
Rating agency Moody’s has reacted to the turbulence in the economy. It revised the outlook on its sovereign rating for India from stable to negative.
- Moody’s India rating is a little higher than that of Standard & Poor’s.
- The outlook revision will compensate for its past optimism in India.
- It warns that if the economy fails to bounce back soon enough, the sovereign rating could go bad.
What does it tell us?
- Impact of slowdown – it impacts the fiscal deficit and borrowings.
- Tax revenue – tax revenue growth is nowhere near budgeted levels. With the slowdown extending into the third quarter, tax revenues will further undershoot.
- What it means for government – the government has been forced to spend more to give a leg up to the economy. More than just pushing expenditure on capital projects, the government gave away corporate tax concessions last month.
- Missed Fiscal deficit – Even with the boost from the ₹1.76 lakh crore dividend payout from RBI, it appears that the government will miss the fiscal deficit target of 3.3% of GDP. Moody has projected that the deficit will slip to 3.7% of GDP this fiscal.
- Only positive – India’s borrowings are almost wholly domestic. External debt to GDP is just 20% but the ratings do have an impact on investor sentiment.
Hope lies ahead
- Signs of revival – the Moody’s outlook revision comes when there are faint signs of a revival in the economy. It may be another quarter or two before growth picks up.
- The festive season uptick in sales of automobiles and white goods points to the return of the consumer to the market.
- Bank credit – increase in the bank credit off take reported by the RBI for the second successive fortnight is positive news.
The government needs to press the reforms harder. There is every need to debug GST. There is a need to go big on disinvestment in the remaining four months of this fiscal. The target of ₹1.05 lakh crore has to be met with a wide margin to contain fiscal deficit slippage. The supportive measures announced in the last two months should be closely monitored for implementation.
9th November 2019
TOPIC: Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests. (Paper II)
Discuss the need to tackle Beijing’s rise in the Indo-Pacific region both politically and economically.
India finally rejected the RCEP trade deal.
- In his speech at the RCEP summit, PM argued that India has been proactively, constructively and meaningfully engaged in the RCEP negotiations since inception.
- The draft RCEP agreement did not fully reflect the basic spirit and the agreed guiding principles of RCEP and did not address satisfactorily India’s outstanding issues and concerns.
- Apart from the 10 member states of the ASEAN, the deal was to include the bloc’s six free trade partners — China, India, South Korea, Japan, New Zealand, and Australia.
- The RCEP negotiations were launched in 2012 and, this year, there was a big push to get it finalised.
- After India’s rejection, the remaining 15 members decided to go ahead and underlined their intent to sign a trade deal sometime next year.
- Base year – Shifting the base year for tariff cuts from 2014 to 2019.
- Import surge – avoiding a sudden surge in imports from China by including a large number of items in an auto-trigger mechanism.
- Rules of origin – stricter rules of origin to prevent dumping from China
- Services – a better deal in services.
- Trade deficits – India runs large trade deficits with at least 11 of the 15 RCEP members. China alone accounts for $53 billion of India’s $105 billion trade deficit with these.
- Domestic industry – China’s need for greater access to the Indian market to sustain its manufacturing industries will hurt the Indian industry and farmers due to a surge in Chinese imports.
- FTA experience – India’s experience with FTAs has been underwhelming. Niti Aayog suggested that FTA utilisation is in the 5%-25% range.
- Domestic opposition – Domestically, the RCEP generated considerable opposition with major stakeholders coming out against it – farmers, dairy industry or the corporate sector.
RCEP – India
- It comprises half of the world population and accounts for nearly 40% of the global commerce and 35% of the GDP.
- RCEP would have become the world’s largest FTA after finalisation, with India being the third-biggest economy in it. Without India, the RCEP does not look as attractive as it had seemed during negotiations.
- Divided ASEAN – ASEAN has been keen on a diversified portfolio so that member states can deal with major powers and maintain their strategic autonomy. ASEAN member states have tried to keep the U.S. engaged in the region.
- Act East policy has been well received. With China’s rise in the region, ASEAN member states have been keen on Indian involvement in the region.
- Indo-Pacific – India’s entire Indo-Pacific strategy might be open to question if steps are not taken to restore India’s profile in the region.
- Rejected China’s dominance – India signalled that, despite the costs, China’s rise has to be tackled both politically and economically.
China in the region
- Escalating Sino-U.S. trade tensions – China was particularly keen to see a successful conclusion of the RCEP summit and had been vigorously pushing for that.
- Increased domination – Both geopolitically and geo-economically, China is set to dominate the Indo-Pacific.
- Counter to Chinese – Japan is now suggesting that it would work towards a deal that includes India.
Way ahead for India
- Economic isolation is not an option for India.
- Bilateral pacts – There are reports that India will move towards bilateral trade pacts.
- Need domestic reforms – India will have to prepare itself more fully to take advantage of such pacts. Domestic reforms will be the need of the hour.