S&P move a timely warning, but no reason to panic: FM

Economists say downgrade had no trigger chambers seek priority for reforms

Finance Minister Pranab Mukherjee on Wednesday termed Standard & Poor’s (S&P) move to lower the outlook on India’s rating a timely warning and assured economic reforms would be on track to rein in the fiscal deficit at 5.1 per cent of the gross domestic product (GDP) for 2012-13, as projected in the Budget.

Cautioning against any panic due to the S&P downgrade, Mukherjee exuded confidence that the economy would grow about seven per cent in 2012-13. The Budget had estimated economic growth this financial year at 7.6 per cent.

“I am concerned, but I don’t feel panicky because I am confident our economy would grow at seven per cent, about seven per cent, if not more. We will be able to control the fiscal deficit, and it would be about 5.1 per cent,” he told reporters here. He said the government would take note of S&P’s decision to lower India’s rating outlook and work to push economic growth. “We should continue to work for higher GDP growth....We will take note. It is a timely warning....So, economic reforms will be on track,” he said.

He added the process of reforms and the administrative decisions required to ensure fiscal deficit was retained at projected level would be taken.

Speaking to Business Standard, Prime Minister’s Economic Advisory Council Chairman C Rangarajan said, “The S&P action is just one perception. It is just the downgrade in outlook. It might upgrade the ratings of India if we show to the world India can grow seven per cent and contain our fiscal deficit.”

He said measures would be taken to contain the fiscal deficit at 5.1 per cent of the GDP this year. “I am confident things will improve. I expect the economy to grow at 7-7.5 per cent in 2012-13,” he said.

Mukherjee said S&P had lowered India’s rating outlook on two counts—the inability to achieve seven per cent growth in 2012-13 and failing to stick to the fiscal deficit target of 5.1 per cent of the GDP. “Perhaps, because of these two reasons and the delay in the process of legislation particularly (those) related to financial sector reforms, might have been the reasons for coming to this conclusion”, he said.

On projections, he said, “I am confident we will be able to stick to the numbers....The situation may be difficult, but surely, we are confident we will overcome these difficulties.”

Admitting there had been a delay in passing certain financial sector reforms Bills, the minister said, “We will try to get these legislations enacted with a broad consensus and I do hope some of the legislations may be enacted during the latter part of the session, surely in the monsoon session.” The government would discuss the Direct Taxes Code (DTC) Bill in the next session of Parliament, he said, adding other legislations that had received the approval of the standing committee, too, would be taken up soon.

The Confederation of Industry (CII) said a few key reforms would enable higher growth and investment, which would be positive for the government’s revenue. It added expenditure could be curbed by implementing policies to control and target subsidies. “CII suggests the government take measures to push reforms, especially in the areas of foreign direct investment, the Goods and Services Tax and the DTC,” said director-general Chandrajit Banerjee. The Associated Chambers of Commerce and Industry said S&P’s move should prompt the government to keep its political compulsions away and demonstrate the reforms process was well on track.

CARE Ratings chief economist Madan Sabnavis said there was no immediate trigger for a downgrade in the outlook. “If we look at the growth, the GDP per capita projection at 5.3 per cent for 2012-13 and if we add a population growth rate of 1.5-1.6 per cent to it, we get 6.7-6.8 per cent GDP growth, which is quite close to RBI (Reserve Bank of India)’s projection of 7.3 per cent,” he said.

He added despite 2011-12 being a difficult year, India recorded 20 per cent growth in exports and because of its diversification into different markets across the world, the crises in the euro zone and the United States would not drastically impact exports.