InvestorQ : Do you think that a sovereign downgrade is likely at this point of time?
Khushi Patel made post

Do you think that a sovereign downgrade is likely at this point of time?

Answer
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Anjana Aiyar answered.
5 months ago


In the last few days, the risks of rating downgrade have been rampant. Indian economy is in a sort of Catch-22 situation. It needs to spend to bring back growth. At the same time, higher spending would mean higher fiscal deficit and risk a rating downgrade. But how likely is a downgrade at this point of time? Even the chief economic adviser (CEA), K V Subramanian has highlighted this risk and hence has defended India’s limited Covid-19 relief-cum-stimulus package. KVS has pointed out that if fiscal slippages are above a certain level then rating downgrades could follow. That was the reason India was being a tad conservative on the spending front. KVS also pointed out that most of the other countries that had undertaken stimulus packages had better macros than India with lower debt levels and lower levels of fiscal deficit. However, that is a call that India needs to take. India can always justify its pump priming strategy as a temporary measure but if it lets growth slip then that could created long term damage to the economy. It is a delicate balance to strike.