Economy Strong? S&P, Moody's Don't Agree
MUMBAI: Though the Finance Minister continues to be gung-ho about the Indian economy, international rating agencies keep on sounding the alarm about its fragile state.
While S&P said on Thursday it did not expect the government to improve its fragile financial health until the national polls, Moody's Investor Services aired it's concerns about the weak fiscal situation despite its upgrade of the country's foreign currency debt ceiling in February.
S&P said unless the government launched measures to improve its finances, public debt would rise and push up interest rates in the medium-term from three-decade lows now.
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"Fiscal consolidation would be delayed to at least until after general elections," Takahira Ogawa, director, Asia and Pacific, sovereign ratings, Standard & Poor's said.
"The general election's results would show to what extent the government can commit to fiscal consolidation as the strength of the power base in parliament will be one of the crucial factors to execute policy measures which will not be popular."
BJP also reversed plans to sell its stake in the second-largest aluminium firm, dealing a blow to its privatisation drive which had notched up a string of big-ticket asset sales in the past three years.
Moody's Investor Services had upgraded foreign currency debt ceiling by one notch to Ba1, the highest level of the speculative grade ratings scale, due to an improvement in the external liquidity position.
"Still, we have concerns about how this success is overshadowed by the weak (and growing weaker) fiscal situation and the inevitable spillover from the latter to the former," Kristin Lindow, vice-president of Moody's Investors Service, said to Reuters.
The combined deficit of the federal and state governments is close to 11 per cent of GDP and interest payments eat nearly half the tax receipts.
Lindow said measures announced by the government in recent weeks could pose difficulties for the fiscal situation. "We explicitly acknowledged in the upgrade that the political cycle would only exacerbate these problems, regardless and perhaps encouraged by a better growth scenario and our view has been further confirmed since then with the measures you have described," said Lindow.
