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Are rating agencies looking at India favourably? Bloomberg TV India discusses this with Thomas Rookmaaker, Director of Sovereign Ratings at Fitch Ratings.
Growth concerns are definitely rising globally. How are you reading the signals?
In our latest global economic outlook, we have pegged growth at 2.3 per cent, which is not much compared to the previous years. We expect it to pick up in the coming years. Global trade is also relatively low. One of the countries worth mentioning is China, where we see a growth of 6.8 per cent in 2015 and a gradual slowdown at 6.3 per cent in 2016 and 5.5 per cent in the next year. What is more interesting for India is not so much what exactly is happening in other parts of the world, but how India is positioned in terms of vulnerabilities.
I think India looks better than how it looked in 2013 during the Taper Tantrum. The external balances are less vulnerable now in the sense that the current account deficit has been reined in. Reserves have been built up.
India also doesn’t look that vulnerable compared with a number of peers — look for instance the dependence of exports on commodities. Also the exports to China are relatively limited. Only 3.8 per cent of India’s exports go to China.
A big source of concern is what is happening in China. Is the Dragon losing fire being priced in India?
Whether it is priced in, I am not sure, but I agree that there are many different channels from which the slowdown in China will impact other countries. On how a scenario of a severe slowdown in China would impact countries, one is the trade channel. Like I said in India only 3.8 per cent of the trade goes to China. For countries like Korea or Taiwan, it is 25 per cent and countries in East Asia also are linked to the Asian supply chain. And for India that is also not an issue. Another channel would be on the capital markets and like I said India looks less vulnerable than a number of its peers.
India is called a bright spot in the global economy. But can we be complacent?
India is certainly not immune to risks. When the Fed liftoff comes, emerging markets may feel the heat again and India is not immune but it is better placed and the rupee is better placed.
I think currently the rupee looks relatively at a fair value level.
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