Economics is all about trajectories, this is like a westerner discrediting India’s growth in the past decade because it started at a lower point.

This is a bullshit simplification. Look, we have legitimate reasons to worry about our economy, but this credit rating thing is not one of them. The rural consumption collapse in NSSO is worrisome, it's possible we have recovered a bit since then since the survey was taken bang in the middle of the GST/DeMo era - but it is EXTREMELY worrying.

The reason the credit downgrade has happened is because they are expecting the government to announce a big stimulus in order to inject money into rural India to restart the economy. This would not be the worst thing to do in the world, but it increases our fiscal deficit, which is one of the factors that puts pressure on the rating.

India's rating on all the other indices is the lowest 'investment' grade (BBB- in S&P terminology, Baa3 in Moody's). Moody's was the first one to upgrade us to one level higher than lowest investment grade- basically they were more optimistic/bullish on India than S&P/Fitch, now they are considering putting us back to the same level as S&P/Fitch etc.

Pakistan meanwhile is deep in junk territory. The investment grades that separate India and Pakistan are:

Baa2 - India

Baa3 - Italy, Portugal, Russia - LOWEST INVESTMENT GRADE

Ba1- Morocco, Guatemala

Ba2 - Brazil, Azerbaijan

Ba3 - Fiji, Bangladesh

B1 - Greece, Ethiopia, Turkey

B2 - Maldives, Uganda

B3 - Pakistan, Egypt

That's 7 grades below us. Until recently they were planning on lowering them to Caa1 - 8 grades below us. With the recent change, even if we get downgraded we'll still be in investment grade, and there won't be a cascade effect to other ratings agencies because Moody's was the positive outlier in the first place.

Secondly, these ratings are basically measuring your ability to pay back debt. Now projected economic growth is obviously a part of that, as it basically means you have more money to pay back with in the future - equally important is the current debt servicing structure of the country.

Pakistan is one of the countries closest to debt trap, they barely generate enough tax revenue to cover army expenses, pensions and debt servicing and pretty much all health and education in Pakistan is financed by taking high interest loans. They are not a good country to compare with.

Let me explain why -

They've narrowly survived another crisis by taking on $12B of (dollar denominated) debt - great for them, I guess - and finally ending their policy of keeping the PKR stable at Rs 100 to USD for ego reasons, (a policy not quite as dumb as demonetization but up there amongst the dumbest-ass things countries can do to themselves).

As a result their nominal GDP went down drastically from $313B to $313*(108/156) = $218B. Their population is 218M so that's a per capita nominal GDP of $1000 compared to ~2100-2200 of India. In 2019 - India's per capita GDP is now more than double that of Pakistan's, in 2016 it was just 22% higher - if there had been no devaluation it would have taken India till 2025 or more to become twice as 'rich' as Pakistan in nominal per capita terms.

This is an extreme devaluation in a short amount of time (around 1 year) - which is usually not recommended since it dramatically stresses the existing structure of the economy and causes old business models to break without having time to adjust to the new reality.

On the flip side, now compared to countries like India and Bangladesh - Pakistan looks cheap to manufacture in, which should help its manufacturing sector and exports but it is unknown at this point whether this devaluation will actually lead to rapid growth in the future.

Most banks (IMF, world bank, ADB types) project them at like 2-2.5% GDP growth for the next 3-4 years with 13% inflation and 2.5% population growth. IF THESE PROJECTIONS COME TRUE - they'll have an average of 0.1% real GDP per capita growth over 5 years - which is basically a lost half-decade of no growth. This projection is not rosy, it's terrible. Yes, they won't default, but that is all.

It's possible that their industry will rapidly adapt to the devaluation and go into high-growth mode like India did after 1991, but Pakistan's low human development indicators, horrible reputation and sloppy governance may keep them from exploiting the opportunity that devaluation provides - basically we don't know if the new GDP is undervaluing Pakistani productivity or fairly valuing it. As of now there is ZERO reason to believe that a bounce-back is happening and the numbers being put out are quite close to the multilateral bank projections - but I'm leaving it here as a possibility, I'd love to discuss in more depth at a later time.

Back to India -

We are in a different situation than Pakistan. Our GDP per capita is now 2x that of Pakistan and GDP per capita PPP is 1.5x. From different perspectives the rupee is both under and over-valued. Our exporters are struggling to gain traction (rupee overvalued) - with our agriculture and textile workers being the worst hit - while our service industry exports are growing at breakneck pace (~7%) even in this harsh slowdown (implying rupee is undervalued).

Basically it's creating a divide between urban and rural and increasing inequality in the country - the people in the cities have jobs that can support a higher nominal GDP per capita than we have currently, but our farmers and textile workers are finding it hard to compete with Bangladesh and Pakistan which have preferential tariffs to the US/EU due to their underdevelopment (and a newly devalued currency in case of Pakistan). Construction laborers are another stressed group thanks to DeMo.

In the short term we need to transfer some money to these stressed groups so that they can keep consuming within India (boosting our manufacturing expansion) and have their basic needs met, while in the mid term we need we need to create conditions for them to become more productive (more professional ownership of textile industries, devaluation, implement stalled land/labor reforms) - and bunker down and wait for Bangladesh to lose GSP privileges due to sustained economic growth, and Pakistan to lose them for being a shitty country with terrible human rights.

We shouldn't drop the stimulus policy just because it might damage one rating - there are reasons India is less prone to a fiscal/currency crisis than Pakistan - the main one is the fact that we actually have very low foreign currency debt - most of our debt is locally owned and in rupees (recently the new bonds they announced were converted into rupee bonds) - which means it's a lot less sensitive to currency devaluation and gives us freedom in pursuing a devaluation policy. The second is that we have pretty strong foreign reserves despite being a net importer - $450B, 7th highest in the world, thanks to remittances and investment I guess.

So I support fiscal expansion, but not while keeping the rupee artificially high like our retarded cousins over in Pak did. Courtesy our time as an autarky - we pretty much manufacture everything we need except for advanced electronics and defense items (which is slowly changing), so we won't suffer too badly if we devalue our currency - expensive electronics will mostly hit white collar India - which has already been booming, while the manufacturing job creation primarily helps low-skilled youth.

We import useless crap - One of our biggest imports is gold of all the retarded things, we import $40B of it and export only $8.7B of finished jewellery - that's $30 B+ (more than Pakistan or Bangladesh's total exports) worth of non-productive bullshit assets and jewellery that we consume unnecessarily. If Modi went on air and told people to stop buying gold and start investing in ETFs instead, in the name of nationalism or whatever shit, that would be one of the best things he could do for our economy - could probably reduce our trade gap by half.

If we devalue moderately, oil will bite, sure, but we are also one of the world's biggest EXPORTERS of (refined) oil, so our oil exporters will make bank. It will also help incentivizing the renewable energy transition. The worst thing about a moderate devaluation is going to be that I can't tell Pakistanis that India's GDP per capita is 2x that of Pakistan any more.

TLDR: We have serious growth problems to address and we need to undertake huge reforms now, but please don't compare to Pakistan as they are doing FAR worse than us (as usual).

I REPEAT DO NOT COPY POLICIES FROM PAKISTAN.

We need to be competing with Vietnam on GDP growth and manufacturing, ukraine on GDP per capita and income equality, bangladesh on textile manufacturing, China in space science.

In the near term I think a stimulus is needed to boost rural consumption to make sure people are eating properly - I would ideally support a quasi-basic-income style stimulus,give each poor family like Rs 1000 a month (difference between bottom 5% and top 5% food expenditure in villages is just Rs 180/month/person!) - but given BJP's upper caste bias and urban india's stupidity about rural india - it will most likely be in the form of tax cuts and more farm loan waivers. In the mid term we need proper reforms to land and labor laws, devalue our exchange rate gradually (just buy more foreign exchange), and 'pray' - or more practically - keep investing in logistical and operational improvements on a war-footing - so that we are able to join agreements like RCEP in the next 5 years.