India has been on the radar of different international agencies in recent days and has been getting high marks for its reforms and growth prospects—beating China.

Country risk monitoring agency Aon, for instance, is optimistic on India’s prospects. “India remains a relative bright spot in the region,” says Aon in its recent Political Risk Newsletter.“The government is moving towards implementing much-needed reforms and focusing on infrastructure in the current budget. These economic improvements offset the continued high level of political violence. The so-called demonetization process in November was not implemented very smoothly, but the impact seems to have faded and the economy is recovering. The ruling BJP has increased its share of vote’s preferences in various local elections, bolstering its position in the legislature. Although it is still well short of a majority, the government should be able to push through key reforms, which could bring some certainty for investors.”

Like the loosening of controls on foreign investment, reduction of export-import taxes, and the removal of price controls.

Meanwhile, Aon is less optimistic concerning China. “China’s tightening policy is set to be a strain on growth internally and abroad,” says Aon.“Domestically, the government remains focused on consolidating power; a trend that will persist in 2017 as the 19th National Congress of the Politburo approaches. The emphasis on a short-term growth strategy, including construction, has increased the economy’s reliance on credit and, as a consequence, the government is looking to tighten its economy policy. This strategy exposes greater economic volatility for 2017 as debt service costs increase and political grievances rise.”

Thus far in 2017, India is the world’s fourth fastest growing economy in the world, according to the World Bank’s latest edition of Global Economic Prospects. For 2017, India’s economy is expected to advance 7.2%, ahead of China’s 6.9 percent. That’s slightly above the country’s long-term growth. GDP Annual Growth Rate in India averaged 6.12% from 1951 until 2017, reaching an all time high of 11.40% in the first quarter of 2010 and a record low of -5.20% in the fourth quarter of 1979, according to Tradingeconomics.com.

While the Indian economy becomes bigger, it is becoming more competitive, too. For 2016-17, India scored 4.52 points out of 7, according to Global Competitiveness Report published by the World Economic Forum, slightly above its ten-year average of 4.33 points. That helped the country climb to rise to the position as the 39th most competitive nation in the world — out of 138 countries ranked in the report.

Improved competitiveness, in turn, has helped narrow the country’s current account deficit to 0.70% of the country’s Gross Domestic Product in 2016.

Financial markets have taken notice. The iShares S&P India have gained 5.52 percent on average over the last three years, beating iShares China Large Caps, which have gained 5.52 percent.

Index/Fund

3 Year Performance

iShares China Large Cap (FXI)

4.79%

iShares S&P India 50 (INDY)

5.52%

 Source: Finance.yahoo.com 6/22/17

Still, major credit agencies have yet to catch up with India’s progress and bring its rating up closer to China. Fitch, for instance, gives China A+, and India BBB- (see table). 

China’s and India’s Credit Rating

Country

S&P

Moody’s

Fitch

China

AA- negative

Aa3  stable

A+ stable

India

BBB- Stable

Baa3 positive

BBB-  stable

Source: http://www.tradingeconomics.com/country-list/rating 2/3/17

India’s credit rating lag behind China is also reflected in credit markets, where the Indian government has to pay almost twice as much as China to borrow money for ten years—see table.

China’s and India’s 10y Bond Yields 

Country

10-year Treasury Bond Yield

China

3.37%

India

6.40

USA

2.46

Source: http://www.tradingeconomics.com 2/3/17

Apparently, these agencies need more evidence to be convinced that India’s economic progress is for real.

By Panos Mourdoukoutas
Forbes

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