India's Growth Dynamics To Continue In Medium Term

Question: With high tariffs being imposed on Indian goods exported to the United States, will India's international credit rating be impacted, resulting in adverse consequences for the economy?

ANSWER: A globally recognised rating agency has raised India's sovereign rating to BBB after a long gap of 18 years. This rating agency has stated that India remains among the best performing economies in the world and has made a remarkable comeback from the effects of the pandemic with the GDP growth between fiscal year 2022 and 2024 averaging at 6.8 per cent. The rating agency expects these growth dynamics to continue in the medium term with GDP increasing at rates around 6.3 per cent annually over the next three years. This will have a moderating effect on the government debt to GDP ratio. Another rating agency has already given a BBB+/Stable rating for India.

One of the factors which has contributed to the upgrade in rating is the fiscal consolidation which has taken place during the last two years. This upgrade is expected to lift investor sentiment because a rating of BBB indicates adequate capacity to meet financial commitments. The rating agencies have opined that robust economic expansion is having a constructive effect on India's credit metrics and that sound economic fundamentals will galvanise the growth momentum over the next three years. The upgrade in rating is expected to lower borrowing costs for quasi sovereign organisations and corporates. Further, this will put India in the investment grade category and propel higher foreign capital inflows.

Question: The government has promised to decriminalise offences under various laws. Have steps been taken in this regard? Intellectual property laws are quite complex in India. Will they be simplified to make the regime friendlier?

ANSWER: The Commerce Ministry in India has recently announced that the government is in the process of identifying around 1,000 provisions where severe penalties are provided for offences. In the past, several provisions of various fiscal laws have been amended with the object of decriminalisation. As far as intellectual property laws are concerned, the government has invited stakeholders to give their suggestions for simplifying them. Based on their feedback, the government has promised to amend the existing laws to make them user friendly. The object of this initiative is to make India's IP framework more innovation friendly.

The government would like to focus on data exclusivity because this would attract significant Research and Development investments from foreign countries and establishment of Global Technology Centres. In fact, the United Kingdom and Switzerland have already incorporated an IP chapter to strengthen patent laws in the recent trade agreements. Therefore, adequate steps are being taken to protect intellectual property rights in India and establish a sustainable ecosystem for research and development.

Question: Foreign investors have been reluctant to make capital investments in India on account of regulatory issues as well as certain anomalies which exist in conducting trading activities. Are these concerns being addressed?

ANSWER: Last month the Securities & Exchange Board of India (SEBI) released its annual report in which it was highlighted that meaningful steps will be taken to further rationalise regulations for foreign investors in order to facilitate long-term investments in India. One of the measures proposed is a single window clearance and providing access to securities markets for overseas investors such as government-owned investment funds, sovereign wealth funds, and companies that pool funds from retail investors. This is expected to promote higher foreign participation in long-term assets. To ease the compliance burden, SEBI will focus on identifying and removing regulatory redundancies.

Earlier, SEBI had proposed measures which would enable shareholders to expeditiously approve low value transactions entered into between related parties. Steps are being taken to strengthen its surveillance mechanism to prevent manipulation in derivatives trading. The regulator has flagged concerns over high trading activity in index options on the expiry day when premiums are very low, as it was found that around 90% index options trading takes place on the final day of the contract. In the annual report, it has also been stated that the regulator will take effective steps to upgrade its cyber security infrastructure which would mitigate threats faced by investors.

The author is is a practising lawyer, specialising in corporate and fiscal laws of India.

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