S&P, Fitch warn country on fiscal, current account deficit.
R Chandrasekaran
Will the Indian government’s efforts to control its fiscal deficit convince the rating agencies such as Standard & Poor’s and Fitch to not downgrade the country?
The rating agencies have been threatening with a possible downgrade on India’s sovereign debt if the emerging economy fails to take concrete steps to control fiscal deficit as well as current account deficit. Aside from this, the rating agencies have citing delay in decision making as one of the major causes for impairing its growth.
Though the S&P and Fitch had disclosed that there was no rating change after the budget announcement on February 28, they have given enough indication of a warning that subsidies and policy execution hold key to the success of the budget proposals.
The government has been holding meeting with the rating agencies representatives to convince them the action taken so far. As part of initiatives, the government’s Economic Affairs Secretary ArvindMayaram met the representatives of S&P today. Earlier, the government held a similar meeting with Fitch on April 12.
The meeting assumes significance in the wake of slumping economic growth in India that reached 5 percent, which is a ten-year low. The government is targeting to achieve 6.4 percent growth in the fiscal year ending March 2014. However, CRISIL has recently reduced its economic outlook on India to 6 percent from its earlier 6.4 percent estimation blaming weak pick-up in consumption, higher interest rates and issues surrounding on project approvals.
During the meeting with S&P representatives, the economic affairs secretary has narrated the government’s resolve to control fiscal as well as current account deficits besides speeding up mega projects. He has pointed out to them that the Cabinet Committee on Infrastructure has cleared billions of dollars worthof projects during the recent past.
The economic affairs secretary also indicated to the S&P that while India is phasing out subsidies on petroleum products, developed nations are offering subsidies of up to 36 percent. There cannot be any doubt that the government has taken some bold initiatives such as capping LPG cylinders to per household and allowed oil companies to increase diesel price in small proportion every month. This apart, foreign direct investment was cleared for retail sector and foreign investors were allowed to invest in domestic carriers risking their vote bank.
Mayaram exuded confidence after the meeting when he said, “We have spoken to them convincingly. We have shown that the reforms is on track.” He also pointed out that investments have seen an uptick on capital goods since October last.
The economic affairs secretary now believes that there is a potential case for upgrade. He added, “I think there is a case for an upgrade because we have taken the kind of decisions that most countries in the world have not been able to take. This country has shown its determination to put the economy back on track. We believe it will happen and there is no doubt about it”.
To contact the author, e-mail: rchandrasekaran@americanbazaaronline.com