India has made a strong pitch to global ratings agency Fitch for sovereign rating upgrade.
The current rating for India is ‘BBB (minus)’ with a stable outlook, which is the last investment grade, and a downgrade will take to it to junk grade.
If that happens, foreign investors will hesitate to invest in the country, while domestic companies will have to shell out more for borrowing from abroad.
India has similar investment ratings from other ratings agencies such as S&P’s and Moody’s.
“India is on the path of fiscal consolidation and Budget has paved the way for increased investment. “We have made a case for a ratings upgrade,” Chief Economic Advisor Arvind Subramanian told reporters here after chairing a meeting with Fitch officials in which he and his team highlighted various initiatives proposed in the Budget to boost growth and investment.
Centre’s commitment The team also reiterated the Centre’s commitment to contain the fiscal deficit within the Budget estimate and also check the current account deficit (CAD) within manageable levels.
The Centre also said that growth prospects had improved on account of four factors – declining oil prices, cumulative effect of reforms, lower interest rates and better monsoon forecast.
“India’s compulsion to reduce fiscal deficit has somewhat lessened,” said a senior official, who attended the meeting.
He said the Centre and States are following a credible fiscal consolidation roadmap and the 3.9 per cent fiscal deficit target for 2015-16 was feasible.
It may be noted that while rolling out a new fiscal consolidation roadmap, Finance Minister Arun Jaitley had said in the Budget that fiscal deficit would be brought down to 3.9 per cent of GDP in 2015-16, and then to 3.6 per cent by 2016-17 and finally to 3 per cent by 2017-18.
Jaitley had said the Centre would achieve the 3 per cent fiscal deficit target by 2017-18 against 2016-17, as it intends to increase public investment to boost growth. As regards CAD, he said it will be less than 1.3 per cent of GDP.
Fitch praise After the Budget presentation, Fitch had praised the government’s continued focus on implementation of structural reforms, but had said the medium-term fiscal consolidation strategy is ‘less aspiring’ than in the past, which is a negative from the sovereign rating perspective.
Fitch is expected to come out with a detailed report on India in a few days.
Meanwhile, Finance Ministry officials will hold meetings with representatives of other rating agencies, such as S&P’s and Moody’s over the next few days.