The Finance Ministry has made a strong case for rating upgrade before the international rating agency Fitch. The agency, last year, lowered rating outlook to negative from stable. It indicates better than one in two chance of sovereign rating getting downgraded.
Fitch officials met the Finance Ministry officials led by Economic Affairs Secretary Arvind Mayaram on Friday. This is the first of such meetings and the next meeting is scheduled with another rating agency S&P on April 25 followed by that with Moody’s in the first week of May.
"Fitch raised concerns on how deficits will be met and how the Government will be able to meet revenue targets. We said we are confident, gold import is declining and investment in our economy is going to start increasing,” a senior Finance Ministry official told reporters after the meeting.
The official further said the Ministry also expressed confidence that Current Account Deficit (CAD) will come down as oil prices are stable and the rupee has been rangebound. This deficit touched 6.7 per cent during the third quarter of 2012-13. However, there is hope that fourth quarter number will be lower and for the full fiscal this will be around 5 per cent. Even Asian Development Bank (ADB) has projected the same.
Talking about the overall investment scenario, the official said that Investment is going to start increasing. “In three months, CCI (Cabinet Committee on Investment) approved projects worth Rs 70,000 crore. These are infrastructure projects and will have positive impact on the cement and steel industries.”
Govt's resolve
The Ministry officials also impressed upon the rating agency the resolve of the Government to follow the path of financial prudence and bring down the fiscal deficit to 3 per cent of GDP by 2016-17. The Finance Minister, P. Chidambaram, has proposed to bring down fiscal deficit to 4.8 per cent in 2013-14 from 5.2 per cent in 2012-13. Even for 2012-13, there is possibility of fiscal deficit actually going down between 5 per cent and 5.1 per cent.
The Government is also betting on various reform measures such as liberalising FDI norms for sectors such as retail and aviation, gradually raising diesel prices to market prices and more recently sugar de control.
It may be recalled that both Fitch and S&P had earlier threatened to downgrade India’s credit rating as an aftermath of the expansionary policy which led to a rising fiscal deficit. The fiscal deficit had touched a high of 5.8 per cent in 2011-12.
Fitch and S&P have given India’s sovereign rating ‘BBB-’. This is the lowest in the investment grade. Any further downgrade will push India’s rating to the junk status, making it difficult and costlier for Indian companies to borrow funds overseas.