Moody's has said that it is maintaining its stable outlook on India's rating.

In some good news to the Indian government which has been facing flak on economic front, credit rating agency Moody's has said that it is maintaining its stable outlook on India's rating. However, it has warned that several challenges still remain. The most important being the country's fiscal deficit. Economic growth has slowed in India in recent months, and the country has suffered mild erosion in its economic profile, with widening trade and current-account deficits.

The central government's fiscal deficit exceeded official projections for the year ended March 31, 2012, reaching 5.9% of GDP. In addition, inflation remains stubbornly high despite the Reserve Bank of India's (RBI) tightening policies. The government in-order to raise revenues has tried several methods but has found little success in that. The government must find ways to reduce the fiscal deficit that threatens to undermine the country's credit standing and possibly trigger a downgrade to junk status.

Finance Ministers Secure Greek Deal, Euro On The Up

After a brief retreat from recent highs against the US Dollar, the Euro once again found itself within reach of these highs as Euro zone finance ministers and the International Monetary Fund finally came to an agreement on how to reduce Greece's debt.

The breakthrough came after 12 hours of talks in a third meeting where the outcome was to go ahead and release urgently needed loans to keep the near- bankrupt Greek economy afloat.

As a result, the Euro appeared to strengthen against the US Dollar directly after news and details of the new deal was first released to the press.

S&P applauds French reform proposals as it maintains its rating.

S&P has reiterated France's AA+ rating and its negative outlook, and warned that the government is likely to miss its 2013 deficit target of 3%, forecasting that the gap is likely to be 3.5%. However, S&P applauded the government's reform proposals, saying they will "improve the country's growth potential." S&P's action - or lack thereof - follows this week's downgrade from Moody's, which is more skeptical about France

The Cabinet Committee on Economic Affairs (CCEA) may just have a solution to India's fuel import bill problem.  The CCEA has made it mandatory for oil marketing companies, namely Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd  (HPCL) and Indian Oil Corporation (IOC) to blend 5% ethanol with petrol. Since ethanol is cheaper than petrol this can help reduce our fossil fuel dependence. While the blending of fuels has been going on for the past 2 years, a clear policy directive was absent. This new directive makes blending compulsory. Ethanol gives better mileage, lowers pollution emissions and is cost effective. A litre of petrol costs around Rs 70 while ethanol costs Rs 40 a litre. Over a billion litres of ethanol will be needed for this blending program. However, India has no supply shortage since the country produced over 2.2 bn litres in FY11. It may be a drop in the ocean, but this will help India's fiscal deficit.

FDI inflow in India is rising but not enough.

There has been a significant growth in foreign capital in India. From 1.1% of capital investments in FY05, foreign capital accounted for 8% in FY11. But is this likely to continue? Foreign inflows have been pouring into the country from foreign institutional investors (FIIs) and FDI (foreign direct investment). But what India really needs is the latter if it wants to take GDP growth to the next level. As today's chart of the day shows, FDI inflow in India has grown over the years but is still a small quantum. In fact, in the first half of 2012 (1HFY13) FDI has contracted 42.8% to US$ 10.4 bn, according to figures by the United Nations Conference on Trade and Development. The reasons are not hard to find. Lack of meaningful reforms and scandals rocked the government and compelled rating agencie s to downgrade India. Once this happens, cost of borrowings goes up making many projects unviable for foreign investors. Regulatory hurdles are also plenty. But all is not so bleak. One has seen investments shoot up in the Indian auto space in recent times. And it is hoped that FDI in retail should also pick up. But it goes without saying that the government will have to be more aggressive if the steady flow of FDI has to keep up in the coming years.

Yen Takes A Hammering Against The US Dollar & Euro

The Euro took off and posted a 6-month high against a floundering Japanese Yen on Wednesday and also recouped some losses against the US Dollar in the process.

The strong movement on the Euro came after Euro Zone politicians beefed up efforts to reach a deal over aid for debt troubled Greece.

The Japanese Yen has been losing ground against its major rivals for weeks and also fell against the US Dollar yesterday, as further speculation that the Bank of Japan would come under political pressure to ease its already loose monetary policy further once again came to the fore.

 

What do you think India's GDP per capita would look like in the year 2060? This is certainly an extremely long term projection but the one that is majorly driven by demographic and economic factors we believe and not influenced that much by debt concerns plaguing most of the developed world. Thus, as today's chart of the day highlights, while aggregate GDP in Asian nations of China and India will increase a great deal, India will still have GDP per capita that is one fourth that of the US in 2060. The study has been done by OECD and it has inferred that India's economy will become a bit bigger than America's by 2060 and China's a lot. But due to India's huge population, the per capita number may not look that large.