Fiscal reforms key to India ratings: Moody's

If the new government at the Centre is unable to draw fiscal policies and push ahead with reforms, it will exert pressure on the country’s foreign currency credit rating, Moody’s Investors Service has said in a report on India.

The government would have to come up with a credible programme to reduce its consolidated deficit, which crossed 9 per cent of India’s output in 2008-09, to boost the outlook for the country’s local currency credit ratings, it said.

The Centre has already borrowed Rs 6,000 crore more in the last two weeks than was planned in the borrowing calendar. Finance Minister Pranab Mukherjee yesterday said that though the government was planning to borrow more in FY10, it was committed to the process of fiscal consolidation over the next two to three years.

Although its ratings outlook for foreign currency (Baa3) and local currency (Ba2) is stable, Moody’s outlook for the country says it faces challenges in macroeconomic management and a backlog of structural reforms. “India’s ratings are based on the assessment of the country’s moderate levels of economic and institutional strength, that are supported by a rapidly growing, and well-diversified economic structure,” said Aninda Mitra, VP and senior analyst at Moody’s.