S&P retains negative outlook on India

S&P retains negative outlook on India

Warns of downgrading sovereign rating if government fails to pursue reforms A New Delhi (Agencies): Global agency Standard & Poor's on Friday warned ...


Warns of downgrading sovereign rating if government fails to pursue reforms A

arvindNew Delhi (Agencies): Global agency Standard & Poor's on Friday warned that it may downgrade India's sovereign rating to junk grade if the government fails to pursue reforms and check deterioration in fiscal and current account deficits.A While retaining India's sovereign rating at BBB(-) with a negative outlook, S&P said there is at least a one-in-three likelihood of a downgrade within the next 12 months.

"We may lower the rating if we conclude that slower government reforms than we currently expect would not lead economic growth to recover to levels experienced earlier this decade," S&P said in a statement.

"BBB(-) is the lowest investment grade and a downgrade would mean pushing the country's sovereign rating to junk status, making overseas borrowings by corporate costlier. High fiscal deficits and a heavy government debt burden remain the most significant constraints on our sovereign ratings on India. Nevertheless, the government has regained control of public finances and embarked on fresh structural reforms since September 2012," S&P credit analyst Takahira Ogawa said.

S&P said although part of this slower growth in India is cyclical, rigidities in the labour and product markets and inadequate infrastructure constrain the country's medium-term growth prospects.

"Despite the initiatives from the cabinet committee on investments to cut red tape on infrastructure and power projects, that committee's success in raising investment growth remains uncertain," it said.

Last month during a meeting with S&P representatives, Finance Ministry officials had pitched for a ratings upgrade arguing that the government has been taking steps to contain fiscal deficit and promote investments. India's long-term growth prospects and its high foreign exchange reserves support the rating, while its large fiscal deficits and a heavy government debt burden constrain it.

"We expect the GDP growth rate of 6 per cent in the current fiscal. Headline and core inflation has come down in recent months," Ogawa said in a conference call.A Asked what could reverse the negative outlook, he said: "If the government carried forward current reform agenda, push some more reforms like land bill, GST as well as narrow down fiscal deficit and CAD and trim subsidies. This could significantly change the outlook". He, however, said compared to a year ago, there is an easing of pressure on ratings downgrade.

S&P said there could be a rating downgrade in case of anaemic investment growth, reversals on diesel or other subsidy measures, or inability to increase electricity supply to meet increasing demand.

"We believe these measures could restore India's robust growth, and thereby ameliorate its public debt trajectory," S&P said.

It further said it expects the current account deficit (CAD) to improve slightly -- mainly because of lower prices of oil and gold -- but remain high at about 4 per cent in the current fiscal.

The CAD, which is the difference between the outflow and inflow of foreign currency, touched a historic high of 6.7 per cent in October-December quarter.

"India's external position remains resilient despite deterioration in the past two years," Ogawa said.

In the current fiscal, the economy is projected to grow at 6.1-6.7 per cent, up from the decade's low level of 5 per cent growth clocked in 2012-13 fiscal. Meanwhile, the Indian government had expressed its disappointment over the observations of the ratings agency and said it would continue to take steps to boost economic growth and curb deficits.

India plans feeder fund for IDFs: FM

London (PTI): India is exploring the possibility of setting up a London-listed 'feeder fund' for Infrastructure Debt Funds (IDFs), and is looking to work with the UK on increasing institutional investments in the sector, said FM P Chidambaram. "Both countries agreed to pursue joint work on the common aim of exploring ways to encourage increased institutional investment in infrastructure," Chidambaram said in a joint statement issued with his British counterpart, George Osborne.

"This will include exploring the possibility of establishment of a London listed 'feeder fund' for Indian Infrastructure Debt Funds (IDFs)," he said after the 6th annual India-UK Economic and Financial Dialogue that ended here on Thursday. A feeder fund makes most of its investments through a 'master fund'. India has set a target of investing $1 trillion by 2017 to bolster its infrastructure. Further, India will actively consider the UK's offer of partnership over the Bengaluru-Mumbai Economic Corridor (BMEC), and co-financing of a feasibility study.

Besides infrastructure, Chidambaram's meeting with Osborne focused on a range of issues including financial sector reforms.

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