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Faced with a potentially damaging ratings downgrade, the Finance Ministry has swung into damage control mode.
At a special review meeting with ratings major Moody’s, the Ministry stressed on the country’s strong economic fundamentals and its commitment to keep the fiscal deficit within 5.3 per cent of GDP. However, it clamed that it did not ask for a ratings upgrade.
Emerging from the meeting on Tuesday, the Economic Affairs Secretary Arvind Mayaram said, “We discussed inflation, (fiscal) deficit, CAD (Current Account Deficit) and the stressed banking system.” The Ministry is also said to have stressed on positives by mentioning about the recovery in equity markets and the strengthening rupee.
Mayaram said the Government did not pitch for any rating upgrade from Moody’s.
“Why would we ask? We just told them our story, that’s for them to decide,” the Secretary stated. This meeting is taking place a week after the agency retained its stable outlook for India’s sovereign debt rating at ‘Baa3’. In contrast, rival rating agency Fitch has maintained a ‘negative outlook’ on India’s sovereign credit rating.
When asked what the representatives were told about the economic situation, Mayaram said they were apprised of the Government’s commitment on the fiscal deficit front and the cash balance position, among other indicators. The Government revised the fiscal deficit target to 5.3 per cent of GDP from 5.1 per cent as estimated in the Budget.
This meeting is taking place at a time when other rating agencies such as Standard & Poor’s and Fitch have expressed concern over fiscal slippages. Both the agencies have warned of a possible rating downgrade. Fitch cautioned India that fiscal slippages in the run-up to 2014 general elections and declining growth could result in rating downgrade to below the investment level.
structural strengths
On its part Moody’s said, in its note dated November 26, that the stable outlook on India's rating was based on its expectation about the economy’s structural strengths. These include a high household savings rate and a relatively competitive private sector. These will ultimately raise the GDP growth rate from around 5.4 per cent in 2012-13 to six per cent or even higher in 2013-14 with this higher growth improving fiscal and balance of payments metrics.
However, Moody’s cautioned that unanticipated domestic political turmoil, a further worsening in global growth and financial conditions, or a surge in food and other commodity prices could all affect the pace and timing of the recovery.
> shishir.sinha@thehindu.co.in
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