The global ratings agency, Moody’s Investors Service upped India’s sovereign local currency rating by one notch from ‘Ba2′ to ‘Ba1′. Despite this raise, the rating is one notch below the investment grade. India’s foreign currency rating has been retained without change at the lowest investment grade of ‘Baa3′. This means that the country’s local currency sovereign rating outlook is positive, while that of the foreign currency sovereign rating is stable.

“The upgrade of the local currency sovereign rating to Ba1 was prompted by the Indian government’s adoption of a medium-term (2010-15) fiscal consolidation strategy, which is supported by a broadening structural reform programme,” elaborated Aninda Mitra, Moody’s VP and lead sovereign analyst.

To combat recession, the government had introduced various stimulus packages during 2008-09, which derailed plans of narrowing fiscal deficit. This led to further widening of fiscal deficit and various international rating agencies issuing warnings of downgrading sovereign ratings. However, with the government systematically tackling the issue of fiscal deficit with diverse stimulus exit strategies of varying scales, it is expected to reach below 5.5% of the GDP during the current fiscal.

The rating agency said, “Moody’s will consider unifying India’s local and foreign currency ratings at Baa3 should the track record of fiscal reforms deepen, and if — currently higher than usual — inflation pressures normalize.” This would provide the much-needed boost to government’s fiscal reforms and help in improving the creditworthiness of rupee.

The latest development means added confidence in the country’s economy and is useful in reassuring foreign investors and in attracting funds to India. This could also help in strengthening the rupee against foreign currencies, which in turn could bring in additional funds.

A finance ministry release yesterday disclosed tax collections for the first quarter of the financial year. The direct tax collection went up by 15.49% to Rs 68,675 crore, compared to the same period last year.

This significant growth in tax collection was aided by corporate tax collection that rose by 21.7% to Rs 43,439 crore. Most of the growth in corporate tax came from advance tax payments made by corporate houses. The increase in advance tax paid reveals the great expectations these corporates have for the current financial year. The 31% increase in advance corporate tax for this quarter is the highest growth recorded since 2005.

A marginal growth of 1.24% was recorded in the personal income tax collections, which includes Securities Transaction Tax (STT), Banking Cash Transactions Tax (BCTT) and residual Fringe Benefit Tax (FBT). STT collection was down by 25.21% from Rs 1,462 crore last year to Rs 1,094 crore this year.

The increase in corporate tax collection signals the rise in profits of the corporates, which in turn confirms economic recovery. Moreover, with the country registering a growth of 19.4% in the manufacturing sector, a significant industrial recovery is also on the way.

The above-par growth in direct tax collection can be attributed partially to the base effect. Last year, the tax collection was at an all-time low due to the staggering effect of recession. For the first quarter last year, while the corporate tax collection had grown by barely 3.3%, personal income tax collection had increased by 4.4%.

In the last budget, the finance minister had accounted for Rs 7.46 lakh crore tax collection for the fiscal, with Rs 4.3 lakh crore coming from direct tax collection – a 13% increase over last year’s collection. With the tax collection exceeding expectations in the first quarter, the government can look forward to shrinking the fiscal deficit gap even further.

The 12-hour Bharat Bandh called by opposition parties on Monday was near-total in all states except a few. The estimated loss to economy is upwards of Rs 10,000 crore. This includes loss in production, industrial output and business. In addition to this, damage to public property as seen in some parts of the country like Mumbai has to be added to arrive at the final figure.

Scores of long-distance trains and flights were cancelled across Indian cities causing huge monetary loss and great inconvenience to hapless passengers. The Bandh effect was evident in the low volumes of trading seen in the country’s stock exchanges. While trading volume came down by 52% in BSE, NSE clocked 35% less trading.

The Industry bigwigs lamented the state of affairs.  Rahul Bajaj, industrialist and former parliamentarian acknowledged the bandh call as legitimate, even while condemning the effect it has on common man and economy. He said, “It is completely legal for the Opposition to voice its protest against price rise. But, there is more than one way to protest. Any protest which inconveniences the common man should not be resorted to.” The view finds support with Adi Godrej, Chairman, Godrej group. He said, “Political parties interfering and disturbing day-to-day work is not at all appropriate. The protest is quite odd and absurd.”

While government accepts that the recent deregulation of fuel prices resulting in marginal rise of their prices would worsen the inflation situation in the country, it is termed as an inevitable step in doing away with subsidies. Finance Minister Pranab Mukherjee points out that this will benefit the economy in the long run by helping in scaling down fiscal deficit.

Despite all the assurances, politics took precedence resulting in colossal damage to the economy.

Prime Minister Manmohan Singh is scheduled to attend the G-20 Summit of world countries to be held in Toronto, Canada this weekend. He will also meet his counterparts in member countries on the sidelines of the summit, including the newly appointed David Cameron (Britain) and Naoto Kan (Japan). In a statement issued before he left for the summit, Mr. Singh made clear India’s stance on the proposed bank tax and stimulus exit.

“We have to be conscious that the recovery is still fragile and uneven. New worrying signs have emerged in the Euro zone,” the statement said.

India finds an ally in the United States in the stimulus exit issue, while European countries such as Britain and Italy have announced measures to raise taxes and cut down expenditure. The US has warned member countries against hasty stimulus exit to avoid repeating the mistakes of ‘30s. Canada is rooting for halving budgetary deficit by 2013.

India is planning to scale down its fiscal deficit to 5.5% of GDP this year from the projected figure of 6.7%. This is being achieved by withdrawing some of the stimulus packages introduced during the economic downturn during 2008-09. India maintains that the path to fiscal consolidation is different for each country depending on the present status of the economy and there is no need for uniform action.

The proposal to tax all bank transactions is another bone of contention that will come up in the summit. India is opposing this move, saying it is unfair to “tax everybody to pull some countries out of the current crisis”. Countries like Britain are behind the proposal. India had earlier expressed its opposition to the bank tax at the G-20 Summit held at Busan, South Korea.