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The global economy is off to one of its worst starts in decades in 2016. Will India remain resilient in the face of the emerging market sell-off? Moody’s Associate Managing Director Atsi Sheth told Bloomberg TV India that all eyes will be on how the government manages its expenditure to factor in the Seventh Pay Commission mandate.
How does 2016 bode for India?
I think it is global growth. People think of India as a domestic demand-driven story and that is indeed the case. But, it is also true that a lot of India’s manufacturing sector is actually quite related to what goes on in the rest of the world. And, you are seeing that over the last year. India’s exports have not been as solid and that shows in corporate profitability and in the manufacturing output. So, I think people had expected India to be very resilient to the downturn in global trade and the fact has been that it’s not.
You have always been cheerful on India. Will you have an angry face on if the fiscal targets are not met in the Budget?
I try never to be too cheerful or too angry. Our sense is that India is at an interesting inflection point in terms of its growth story. We have seen headline GDP growth go up but we haven’t seen that reflected in the government’s revenue buoyancy. And that’s partly because consumption is still quite subdued for a variety of reasons and so is profitability. So, I think that in the Budget – if it is realistic – revenue growth may disappoint yet again. And then the question is: what are the kinds of policy measures that the Budget will take to prepare for that eventuality? We have seen in the last couple of Budgets that there haven’t been back-up measures, except for a sharp retrenchment in expenditures in the last quarter. So, one of the things we are watching is what kind of planning goes on. The second is when we know that expenditures are going to go up in the current Budget for the [Seventh] Pay Commission and other spending, what kind of mix of expenditure measures will actually be implemented? Will the mix be geared towards infrastructure spending? How will it be financed? If so, will it be on-budget or off-budget balance shee
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