S&P’s reaffirmation of a “BBB-“ rating on India sparks a debate on whether fiscal risks are ruining the chances of a rating upgrade. In an interview to Bloomberg TV India, the Aditya Birla Group’s chief economist Ajit Ranade discusses the pressure points of the economy and ways of tiding over them.

How was the brainstorming session that the Finance Minister had with economists at the Niti Aayog meet?

A lot of topics got covered — fiscal rules, focus on infrastructure, the need to revive private sector investment, a lot of discussions on agriculture, on trade and growth and on the global macro. So in a way many issues got discussed and some of them will have a bearing on the Budget stance of the government.

With a deficient monsoon again this year, will agriculture come into focus in the next budget?

It is true that this year monsoon has been deficient and it is now two consecutive years. Some of it is getting reflected in concerns about food inflation although it is currently confined to a few commodities but certainly food inflation will impact the CPI index, which is detrimental to growth.

So I think we may see much more focus on agriculture. Of course every year in the Budget there are measures but I think agriculture will receive special attention.

S&P reaffirmed India’s rating last night even though India is touted as the only bright spot in an otherwise gloomy global economy. How do you see growth really picking up?

The global situation, especially emerging markets, is not looking bright and commodity producing nations have taken a big hit, including those big downgrades.

So, in that sense, this affirmation of India’s grade status is very important. Also remember it is not just the S&P, but also IMF and others who have been calling India their last man standing.

India received a de-facto fiscal stimulus because of the commodity prices. What I mean by that is this is the fiscal stimulus which does not have any side effects, like it is not inflationary, it does not expand the deficit, and it doesn’t crowd out private investment.

So people like S&P tend to be fiscal hawks, so they are very focused on the fiscal situation. But we should not be complacent because next year the fiscal situation is going to be a little bit under strain, commodity prices may move up, especially oil prices.

Additionally, we have the added obligation of the new Pay Commission and the OROP (One Rank One Pension) scheme. So it may not be that comfortable but despite that if S&P has reaffirmed the rating I think that is significant.

Will the fiscal math get upset given the pressure points?

We cannot afford to be complacent because the fiscal numbers are on target this year and we have a three-year glide path going down.

I think the idea is that there will be a couple of other strategic things to be done that is expanding the tax net, expecting buoyancy from declining corporate tax rate and in addition some pick-up from growth. It’s a combination of these three that will contribute to the revenue.

We might also see some new fiscal rules coming in — the FRBM (Fiscal Responsibility and Budget Management Act) in a new avatar. It is possible to commit to fiscal discipline — not just a number, like a 3 per cent target, but a cyclically adjusted fiscal deficit, so that if it is in a downturn it gives the Centre enough room and leeway to push spending, and in a boom time it can cut back.

So that over a cycle you maintain the fiscal discipline rule.

Fiscal targets are often tied to meeting disinvestment targets. Doesn’t that increase the fiscal risk?

The targets for disinvestment depend on the markets, which is affected by global sentiments. We are forever under this hanging sword of when is Fed going to start hiking rates, when is the panic flow going to start from emerging markets to the developed markets… That causes the markets to be volatile.

One response, I would say, is to tie those revenues from disinvestment to specific infrastructure spending. We can keep it slightly outside the budget but directly earmark it to certain infrastructure heads.

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