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| Post-Budget, govt runs risk of downgrades: Rating agencies |
| BS Reporter / Mumbai Jul 08, 2009, 00:11 IST |
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Global rating agencies, including Standard & Poor’s (S&P) and Fitch, have raised concerns over the lack of a road map for fiscal consolidation in the Union Budget for 2009-10.
Given the heavy debt burden and fiscal deficit projected at 6.8 per cent of gross domestic product (GDP), the rating agencies said that the government failed to come out with measures to take control of the situation.
However, they welcomed the government’s focus on boosting growth to 9 per cent at the earliest, while promoting inclusive development.
On the issue of subsidies for fertiliser and petroleum, the agencies said that the issue was not addressed adequately. “Unfortunately there was no significant information on the road map for fiscal consolidation or details for the divestment plan for state-owned companies,” said S&P.
“If the Indian government failed to consolidate its fiscal position in near future, there is a risk of a downward revision of our ratings on India,” said the rating agency.
S&P has a BBB- rating on India’s foreign currency long-term debt, its lowest investment grade.
However, it would stabilise the rating at the current level if the government began to narrow the public sector deficit again.
After the Interim Budget in February, S&P had changed the outlook on India to negative after the government said that an additional stimulus of 0.5 to 1 per cent of GDP may be required.
Fitch today said that the impact of the steps taken by the government on account of tax and other benefits given to sectors such as oil & gas, auto, gems and jewellery were likely to be marginal. However, higher spending would accentuate fiscal deficit, it said.
“The impact of the Union Budget on corporates is expected to be broadly neutral from a credit perspective,” it said.
Moody’s economy.com lauded the government’s effort to boost growth to 9 per cent at the earliest while promoting inclusive growth.
The government has left corporate tax rates unchanged. Sitting tight appears to be the optimal choice for now, as a hike in taxes could derail economic recovery while a cut could put more downward pressure on the fiscal balance, Moody’s added.
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