“In this environment, focusing on a credit rating is just nuts. Your credit rating just does not depend on your level of debt, it depends on how you are going to grow out of the debt. We cannot worry about spending. We certainly have to focus the spending but we have to repair the damage now,” Rajan said during an online conference on Tuesday.
Rajan was speaking during a panel discussion of a research paper titled ‘Whither India’s Economy Post-COVID-19?’ hosted by the National Council of Applied Economic Research.
Concurring with the point, Prachi Mishra, chief India economist at Goldman Sachs, said rating agencies and markets do not expect fiscal consolidation but a growth revival strategy and a medium term fiscal consolidation plan from the government.
“Credit rating agencies themselves are saying that it is silly to focus on credit ratings right now. We actually do not want you to worry about fiscal deficit and debt rising today, this is happening across the world,” Mishra said during the discussion.
However, she found it paradoxical that politicians were reluctant to spend more since they were worried about the ratings. “On the other hand, the arguments we are hearing from politicians is that we cannot do fiscal expansion because we are worried about credit rating agencies, which is a bit paradoxical,” Mishra added.
According to Mishra, the second quarter also saw a weak performance with 45% quarter-on-quarter contraction on an annualised rate. The expected pick up in the next quarter was bringing in a sense of complacency among policy makers and market players, she said.
“Complacency seems to have set in among both market participants as well as policy makers looking at these figures.Going into the third quarter of course there is going to be a pick up. People are getting excited about this pick up but this is almost mechanical. If you have a quarter with a very sharp contraction, the following quarter is almost mechanically going to pick up,” Mishra said.