Govt officials reassure Moody's on deficit

The government is committed to restricting the fiscal deficit to 5.3 per cent of gross domestic product this financial year and has enough cash balance to deal with the situation, the finance ministry told global rating agency Moody’s on Tuesday.

“We discussed inflation, (fiscal) deficit, CAD (current account deficit), stressed banking system,” Department of Economic Affairs Secretary Arvind Mayaram told reporters after a meeting with representatives of Moody’s.

He said the government did not pitch for any rating upgrade from Moody’s. He added, “Why would we ask anything? We just told them our story; that’s for them to decide.” The meeting took place a day after another leading agency, Fitch, cautioned India that fiscal slippages in the run-up to 2014 general elections and declining growth could result in a rating downgrade to below investment level.

When asked what the representatives were told about the economic situation, Mayaram said they were apprised of the government’s commitment on fiscal deficit and cash balance position, among indicators.

Last month, Moody’s said its credit outlook for India was stable but cautioned that a high fiscal deficit and persistent inflationary pressure would continue to pose a challenge for the economy. It had said its ‘Baa3’ sovereign rating was supported by credit strengths which included a large and diverse economy, strong GDP growth, and savings, and investment rates.

Another finance ministry official said the government’s recent reform measures and currency exchange rate scenario also came up for discussion. “We will stick to the 5.3 per cent fiscal deficit target; no extra borrowing required. The secretary has explained to Moody’s representative that everything is fairly good,” he said.

Moody’s were also told that government’s cash balance position had been “fairly good” for the past two-three months, he said. The government has pegged its market borrowing for the current financial year at Rs 5.7 lakh crore.