“I was wondering what would break first. Our country or its growth estimates.”
Economic ratings and growth estimates are a “bane” to any economy if the numbers are watched closely.
Well, I am not saying that our economy is utopian (thanks to the failed attempt to speed up reforms called Union Budget 2016-17), neither am I saying that we should jump because it is getting MODIfied day by day. But when a (not so) genuine financial services company like Fitch Ratings (read as Ditch) or Moody’s (name bears testimony to their mood swings in projections) come out one day just to tweak our economy and equities without having any basis for the same, that is when any sane writer is forced to demystify the truthfulness of growth projections and estimates.
DEVIL IS IN THE ESTIMATES:
To begin with, growth estimates and ratings are a way of telling the public that the so-called “financial research” of the big boys are actually doing something rather than eyeing SEC’s wallet for regulatory purposes. The ratings can be for any jargon you can come up with (bonds, equity, country debt, even online articles). The methodologies of the same can be even more vernacular with ratings varying around AAA, BBB and can be revised/ published every month (if the rating agency doesn’t get timely funds from the incumbent).
IT DOESN’T MATTER WHO WE ARE, WHAT MATTERS IS OUR RATING
Ratings and projections can save an economy like Japan and bring a country like U.S.A. to doldrums. They matter because they are perceived (feared) to dig into intricacies (and deep shit) of the economy and furnish a risk associated with its business.
India being an emerging (dis)economy has to keep a check on what the big houses are thinking about its progress and daily parliamentary juggernaut. With Modi being the center of attention, it is mandatory for his cabinet to cut through bullshit and pass marquee reforms.
So if the economy gets a bad number, investments will stop flowing in owing to the rising perception of risk, resulting in rupee free-fall due to fall in U.S.D. supply. The commodity prices (the only economics jargon a civilian like you is concerned with) will rise, eating into your pocket. So if an agency just to toy with our economy for some time gives us a bad rating, it will be no less than a collateral damage.
You are certainly a “Moody” agency
India Rating: BBB-
(You happy now, NAMO?)
POOR ESTIMATES ARE LIKE GREEK ECONOMY – ALL THEY NEED IS A LITTLE DOUCHE
Morgan Stanley yesterday revised its growth forecast for India for 2016 to 7.5 per cent from 7.9 per cent previously and noted that the country’s economy is expected to see tepid recovery largely owing to external factors. According to the global financial services firm, though the domestic macro environment has been improving steadily in the last two years, the pace of growth recovery has been slower than anticipated, held back by external factors.
It’s surprising to find out that last month they were heavyweight on Indian economy due to its isolation from global cues. (I smell a contradiction. Guess the cut wasn’t sent). “This country is less exposed to external headwinds and would benefit from lower commodity prices” were the exact words.
What calls for a double whammy, Fitch Ratings lowered India’s economic growth forecast for next fiscal to 7.7 percent but maintained the GDP projection for current fiscal at 7.5 per cent. Fitch, in February, forecasts an 8 percent GDP growth in 2016-17 supported by the government’s beefed-up CapEx spending and gradual implementation of a broad-based structural reform agenda. Higher real disposable income, a normal monsoon after two years of below-average rainfall, a substantial wage increase for central government employees (and commission for the agency) were the primary reasons.
The point is that these big names don’t have a basis for playing with our equities. Still they do because they can’t be bought, bullied, reasoned or negotiated with. All they want to do is watch the world burn.
VERACITY FOR DUMMIES
Growth estimates matter. They can be a pain for the economic progress as well as your pocket money if your country doesn’t get a good number.
3-4 rating agencies dominate the projections segment and are believed to get a cut for a good rating from the beneficiary country / company.
Indian ratings haven’t been too good lately. Thanks to our budget and the whimsicality of the rating houses.
Numbers can lie (and financial research can be deep sh*t.)
Views presented in the article are those of the author and not of ED.