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Economic conditions of India remains weaker than peers: Moody

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New Delhi: Financial conditions of India will remain weaker than other country’s economy in the coming course also even if the economic consolidation will continue, said Moody’s Investors Service on Tuesday regarding India’s budget for next term.

“Even if the budgetary consolidation continues, India’s fiscal metrics will remain weaker than rating peers in the near term, because of the relatively high level of India’s state and central government deficits and debt,” Moody’s said in a report.

“The importance of the upcoming budget lies in its message on the government’s fiscal consolidation plans,” the American agency said.

“But at around 63.8 percent of GDP, India’s government debt ratio remains high compared to the median of 49.5 percent for Baa3-rated peers. Without continued fiscal consolidation, India’s government finances will continue to compare poorly to peers,” it added.

The economic shortage of GDP touched 4.1 % in 2015-16, as the government planned it at 3.9 % and 3.5 % of GDP for this fiscal and the next, respectively.

According to report, “The budget will reveal whether and how the government intends to maintain the trend of modest fiscal deficit reduction of the past few years’’.

Structural factors weaken the fiscal, said Moody. Around $1,700 lower per capita incomes limit the government’s tax base and increase pressure of financial support and spending on development.

“Moreover, interest payments absorb almost a fifth of Indian government revenues, a consequence of high debt, which we estimate at 63.8 percent of GDP in fiscal 2016, down from 83.1 percent in fiscal 2005. This restricts the government’s fiscal flexibility,” said Moody.

India’s moving growth rate perform better than the autonomous, was accompanied last year because of weak corporate profitability with pricing power staying low and by overcome rural demand payable to poor monsoons, said Moody while looking at India’s current environment growth which creates problems in fiscal consolidation.

“For instance, despite a robust GDP growth above 7 percent in 2015, rural demand and corporate profitability remained subdued, weighing on tax revenues,” it said, adding that government tax revenue growth has cooled.

Moody’s said that India’s economic consolidation process such as fall in corporate profits or expenditure growth or increase in subsidy costs remains at risk to economic shocks, on the basis of trends in revenues and expenditures over the last five years.

“Therefore, fiscal improvements are likely to be limited in the near term. Whether they occur over the medium term will depend on the successful implementation of policy measures that expand the revenue base and/or curtail expenditure commitments,” Moody’s said. (IANS)

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How telecom has become driver of economic change in India

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The country's hyper-competitive telecom sector has led the revolution from the front.
The country's hyper-competitive telecom sector has led the revolution from the front. Wikimedia Commons
  • India has done well to stay ahead of the curve in the technological revolution
  • The sectoral change in productivity has been the highest in the telecommunications sector since the reforms of 1991
  • India has managed to provide the cheapest telephony services around the world

For the most part of human history, the change was glacial in pace. It was quite safe to assume that the world at the time of your death would look pretty much similar to the one at the time of your birth. That is no longer the case, and the pace of change seems to be growing exponentially. Futurist Ray Kurzweil put it succinctly when he wrote in 2001: “We won’t experience 100 years of progress in the 21st century – it will be more like 20,000 years of progress (at today’s rate).” Since the time of his writing, a lot has changed, especially with the advent of the internet.

India has done well to stay ahead of the curve in the technological revolution. The country’s hyper-competitive telecom sector has led the revolution from the front. In fact, according to Reserve Bank of India data, the sectoral change in productivity has been the highest in the telecommunications sector since the reforms of 1991, growing by over 10 percent. On the other hand, no other sector has had a productivity growth of above five percent during the same period. It is no wonder that it has also been one of the fastest-growing sectors of the Indian economy, growing at over seven percent in the last decade itself.

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Such an unprecedented pace of growth has been brought about the precise levels of change that Kurzweil was so enthusiastic about. Today’s smartphones have the power of computers that took an entire room in the 1990s, and the telecom sector has had to keep up with a provision of commensurate internet speeds and services. Meanwhile, India has managed to provide the cheapest telephony services around the world, which has hit rock bottom after the entry of Reliance Jio. This has ensured access to those even at the bottom of the pyramid.

A rise in internet penetration has distinct positive effects on economic growth of a country.
A rise in internet penetration has distinct positive effects on economic growth of a country. Wikimedia Commons

Even though consumers have come to be accustomed to fast-paced changes within the telecom sector, the entry of Jio altered the face of the industry like never before by changing the very basis of competition. Data became the focal point of competition for an industry that derived over 75 percent of its revenue from voice. It was quite obvious that there would be immediate economic effects due to it. Now that we’re nearing a year of Jio’s paid operations, during which time it has even become profitable, we saw it fit to quantify its socio-economic impact on the country. Three broad takeaways need to be highlighted.

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First, the most evident effect has been the rise in affordability of calling and data services. Voice services have become practically costless while data prices have dropped from an average of Rs 152 per GB to lower than Rs 10 per GB. Such a drastic reduction in data prices has not only brought the internet within the reach of a larger proportion of the Indian population but has also allowed newer segments of society to use and experience it for the first time. Since the monthly saving of an average internet user came out to be Rs 142 per month (taking a conservative estimate that the consumer is still using 1 GB of data each month) and there are about 350 million mobile internet users in the country (Telecom Regulatory Authority of India data), the yearly financial savings for the entire country comes out to be Rs 60,000 crore.

To put things in perspective, this amount is more than four times the entire GDP of Bhutan. Therefore, mere savings by the consumer on data has been at astonishing proportions.

Today's smartphones have the power of computers that took an entire room in the 1990s, and the telecom sector has had to keep up with a provision of commensurate internet speeds and services. Wikimedia Commons
Today’s smartphones have the power of computers that took an entire room in the 1990s, and the telecom sector has had to keep up with a provision of commensurate internet speeds and services. Wikimedia Commons

Now, this data has been used for services that have brought to life a thriving app economy within the country. So, the second level of impact has been in the redressal of a variety of consumer needs — ranging from education, health and entertainment to banking. For instance, students in remote areas can now access online courseware and small businesses can access newer markets. Information asymmetry has been considerably reduced.

Third, a rise in internet penetration has distinct positive effects on economic growth of a country. These effects arise not merely from the creation of an internet economy, but also due to the synergy effects it generates. Information becomes more accessible and communication a lot easier. Businesses find it easier to operate and access consumers. Labour working in cities has to make less frequent trips home and becomes more productive as a result. Education and health services become available in inaccessible locations. Multiple avenues open up for knowledge and skill enhancement.

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An econometric analysis for the Indian economy showed that the 15 percent increase in internet penetration due to Jio and the spill-over effects it creates will raise the per capita levels of the country’s GDP by 5.85 percent, provided all else remains constant.

Thus, India’s telecom sector will continue to drive the economy forward, at least in the short run, and hopefully catapult India into 20,000 years of progress within this century, as Kurzweil postulated. The best approach for the state would be to ensure the environment of unfettered competition within the industry. Maybe other sectors of the economy ought to take a leaf out of the telecom growth story. The Indian banking sector comes to mind. However, that is a topic for another day. (IANS)

(Amit Kapoor is Chair, Institute for Competitiveness, India. He can be contacted at Amit. Kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, a senior researcher at the institute, has contributed to the article.)