ET NowIn a chat with ET Now, Mythili Bhusnurmath, Consulting Editor, ET Now, shares her macroeconomic outlook for India. Excerpts:
ET Now: The way I see it, S&P is just one step short of saying we are not going to be upgrading India, but it is reiterating pretty much what everybody is saying, that India is a bright spot for investment, so take your bet there. Your take?
Mythili Bhusnurmath: Yes, I sound like a sceptical journalist when I say I begin to worry when everybody sees India as a bright spot because if you remember, that is what exactly went wrong with our India Shining story because the whole world wants India as a bright spot and that is only in matter of relatively speaking. In terms of how much more we need to do, I am not so sure that India really is a bright spot.
From the FII perspective, from the rating perspective, maybe yes, but one must remember, this is the same S&P which has just reiterated Brazil’s rating. If you look at Brazil and you look at India, there is no comparison between the two. Brazil’s GDP is expected to contract this year. So I am a little sceptical of whatever rating agencies say, not only because they have had egg on their face in the past, but also because there are many things that still need to be corrected in India and the fact that they look at the position of India’s corporates, they talk about capital spending.
I am not very sure where they have seen that capital spending because we have not seen much of that on the ground. So I am a little sceptical. It is a little early in the day to say that we are the bright spot, but maybe, we are becoming brighter than we were before or less dim than in the past. That is the way I would like to look at it.
ET Now: If we are not to be so obsessed with what the ratings have to say about India, on the macro front -- over the last couple of weeks -- a lot of data has come out, there has of course been more clarity from the Fed as well. Where are we headed as you collate all the data?
Mythili Bhusnurmath: Certainly, we are on the recovery trajectory. If you look at the Indian economy today and where we were about a year or two years ago, we are certainly far better placed. Having said that, the fact is that we are an emerging market, we have a huge exposure to capital flows and particularly capital flows of the volatile variety. So anything that the US Fed does is going to hit us. If we are better armoured, it is just in relative terms.
So it will be a little foolish, particularly because Indian corporates have gone in a huge way to borrow abroad with that relaxation in ECB guidelines that the previous government did. Particularly our corporates have refused to hedge. In fact, a very small part of the exposure remains hedged and a large part is un-hedged.
Given that they would be particularly vulnerable in case the rupee were to weaken dramatically as the rupee is overvalued, it needs to weaken and if the US Fed were to increase its interest rate, they will get hit. So our exposure to capital flows does render us far more vulnerable than China.
So, certainly while we are better, we are not completely out of the woods. That needs to be kept in mind, particularly because though the government has initiated many moves, it takes a long time before these really translate into action on the ground. So it will be a little premature to celebrate. Complacency is very dangerous. So we need to be constantly aware that there is much more that needs to be done. So far so good, but that is not the end of the day.
ET Now: The way I see it, S&P is just one step short of saying we are not going to be upgrading India, but it is reiterating pretty much what everybody is saying, that India is a bright spot for investment, so take your bet there. Your take?
Mythili Bhusnurmath: Yes, I sound like a sceptical journalist when I say I begin to worry when everybody sees India as a bright spot because if you remember, that is what exactly went wrong with our India Shining story because the whole world wants India as a bright spot and that is only in matter of relatively speaking. In terms of how much more we need to do, I am not so sure that India really is a bright spot.
From the FII perspective, from the rating perspective, maybe yes, but one must remember, this is the same S&P which has just reiterated Brazil’s rating. If you look at Brazil and you look at India, there is no comparison between the two. Brazil’s GDP is expected to contract this year. So I am a little sceptical of whatever rating agencies say, not only because they have had egg on their face in the past, but also because there are many things that still need to be corrected in India and the fact that they look at the position of India’s corporates, they talk about capital spending.
I am not very sure where they have seen that capital spending because we have not seen much of that on the ground. So I am a little sceptical. It is a little early in the day to say that we are the bright spot, but maybe, we are becoming brighter than we were before or less dim than in the past. That is the way I would like to look at it.
ET Now: If we are not to be so obsessed with what the ratings have to say about India, on the macro front -- over the last couple of weeks -- a lot of data has come out, there has of course been more clarity from the Fed as well. Where are we headed as you collate all the data?
Mythili Bhusnurmath: Certainly, we are on the recovery trajectory. If you look at the Indian economy today and where we were about a year or two years ago, we are certainly far better placed. Having said that, the fact is that we are an emerging market, we have a huge exposure to capital flows and particularly capital flows of the volatile variety. So anything that the US Fed does is going to hit us. If we are better armoured, it is just in relative terms.
So it will be a little foolish, particularly because Indian corporates have gone in a huge way to borrow abroad with that relaxation in ECB guidelines that the previous government did. Particularly our corporates have refused to hedge. In fact, a very small part of the exposure remains hedged and a large part is un-hedged.
Given that they would be particularly vulnerable in case the rupee were to weaken dramatically as the rupee is overvalued, it needs to weaken and if the US Fed were to increase its interest rate, they will get hit. So our exposure to capital flows does render us far more vulnerable than China.
So, certainly while we are better, we are not completely out of the woods. That needs to be kept in mind, particularly because though the government has initiated many moves, it takes a long time before these really translate into action on the ground. So it will be a little premature to celebrate. Complacency is very dangerous. So we need to be constantly aware that there is much more that needs to be done. So far so good, but that is not the end of the day.
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