[‘Daily News Updates’ will provide you with a simplified understanding of the important economic/financial events across the country]
India’s WPI Inflation Reduces to 12.07%
In a previous edition of Daily News Updates, we noted that “the Wholesale Price Index (WPI) [This index measures the price level of goods traded in the wholesale market] is soaring, expected to touch the highest rate (13.3%) in three decades.” In May 2021, it was at a record high of 12.94%. However, in June, it eased marginally to 12.07% due to a fall in food and crude oil. In June 202, the WPI inflation was (-) 1,81%. However, the double-digit WPI is still a cause of worry, and many believe the situation will remain the same till October. WPI inflation can spill over to the Consumer Price Index (CPI), which can be a politically sensitive matter. We had noted why this spill-over has not completely happened till now–
“Currently, the increase in WPI is driven by disruptions in the supply chain due to the second wave of the pandemic and other factors such as global crude oil prices, which are high. The economy is still demand-deficient, i.e., a lack of demand for goods and services because of the uncertainty surrounding the second wave and a possible third wave of COVID-19. Thus, producers facing a high WPI (and consequently increased input costs) are not willing to pass the burden on to the consumers (by increasing prices), fearing they would lose even the little demand they have now. Sooner or later, as demand picks up, higher costs for producers will inevitably translate into higher prices for the consumers, and RBI will have to go for inflation targeting.”
S&P’s Rating for India is at the Lowest Investment Grade for the 14th Year in a Row
In a previous article on the blog, we had explained how the International Credit Agency Moody’s Ratings work-
- Moody’s rating symbols in descending order are- Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C.
- The ratings from Aa to Caa are further divided into 3 categories. It is denoted by numeric codes – 1, 2, and 3. 1 means highest ranking amongst the other countries with the same rating, 2 means mid-range ranking, and 3 means lower end of the ranking.
- Baa3 is the lowest investment grade, just a notch above the junk grade. India’s rating was Baa3 before the upgrade.
- Each rating, with its numeric code, is further subdivided into 3 categories: Positive, stable, and weak. Positive means highest ranking amongst the other countries with the same rating and numeric code, stable means mid-range ranking, and weak means lower end of the ranking.
- Moody’s India ranking was upgraded to baa2 stable from baa3 positive
- Other international credit rating agencies like Standard & Poor (S&P) and Fitch are expected to follow suit in 6-7 months.
An improvement in credit ratings allows the country to borrow at a lower interest rate in the international market. It also improves the ratings of domestic companies, increases Foreign Institutional Investment (FIIs) and Foreign Direct Investment (FDI) [as many investors have a policy of not investing in countries rated below a certain threshold].
Om Tuesday, Standard and Poor (S&P) declared India’s sovereign rating at the lowest investment grade of BBB– for the 14th year in a row with a stable outlook. They also predicted real GDP growth of 9.5% in the 2022 fiscal. It also stated that the “sovereign credit ratings on India reflect the economy’s above-average long-term real GDP growth, sound external profile, and evolving monetary settings.”
[Note that the scale for S&P is slightly different from Moody’s, as discussed above. Refer to the diagram below for a better understanding].
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