With reference to “Change in mood” (November 20), that Moody’s has upgraded Indian sovereign bond rating is but a signpost which reinforces that the direction is right. The finance minister would appear prudent, post-Moody’s assessment, in sticking to the glide path on fiscal deficit, hinting at bank lending than public spend. This is too cautious in this phase of a hesitant jobless growth. The ongoing moderate inflation should keep the extra debt that the government would issue still prized and having value to then encourage accelerated spending.
Economists look not only at quantities of debt issued, but at signals from key indices; the prices of government debt which reflects the rate of inflation; the nominal interest rate and the level of the stock market. Data show that in the debt/GDP ratio, the crux of the issue emanates from the denominator, not the numerator. There is leeway yet for more government debt until interest and inflation rates begin to rise uncomfortably above normal levels, or the stock market plunges. Larger benefits are only gained from addressing major challenges of inadequate infrastructure and administrative lag. The rating agencies only provide one facet of the economy.
R Narayanan Navi Mumbai
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