Government pitches for rating upgrade with S&P

By Manoj Kumar

NEW DELHI (Reuters) - The government pitched for a rating upgrade on Thursday at a meeting with ratings agency Standard & Poor's, a top finance ministry official said, citing steps taken by it to control a high fiscal deficit and revive investments.

S&P and its rival Fitch had cut their outlook on India to negative last year, warning the country of a possible rating downgrade to "junk" on worsening public finances, a slowing economy and persistent political gridlock in New Delhi.

But in their meeting with S&P, Indian officials argued the outlook should be changed, and the country deserved an upgrade for actions taken by Prime Minister Manmohan Singh's government to put finances in order and bolster investor confidence.

"We are simply saying we have taken strong, hard decisions," Economic Affairs Secretary Arvind Mayaram told reporters after meeting a team of S&P analysts.

"This country has shown its determination to put economy back on track. We believe it will happen," he said, referring to an upgrade.

Earlier this month, New Delhi made a similar pitch to Fitch.

Threatened with a downgrade the country could ill-afford, Singh's minority government took a slew of politically risky steps last September, including trimming budget-busting fuel subsidies, reining in public spending, and opening industries like retail and aviation to more overseas investment.

While these measures have not yet revived economic growth that probably hit a decade-low of 5 percent in the financial year that ended in March, brakes on public spending have helped bring down the fiscal deficit under 5.2 percent of GDP from 5.8 percent a year earlier.

Finance ministry officials say the actual deficit for 2012/13 could be around 5 percent. The official deficit data is expected on May 31.

However, the new worry for the government is the widening current account deficit, which hit an all-time high of 6.7 percent of gross domestic product in October-to-December period.

The finance ministry is optimistic that sliding gold and oil prices will help bring it down, and the government could finance the current account deficit without drawing down forex reserves.

Prime Minister's Economic Advisory Council headed by former RBI governor C. Rangarajan, says the deficit could narrow to 4.7 percent of GDP in current fiscal year beginning April, helped by higher exports and lower gold imports.

Finance Minister P. Chidambaram has promised to limit the fiscal deficit in the new financial year to below 4.8 percent and trim it further to 3 percent by the fiscal year 2016/17.

The government has also set up a panel to expedite regulatory clearances for major projects, which on Monday cleared energy and power projects worth billions of dollars.

Both Fitch and S&P rate India at BBB minus with a negative outlook, the lowest investment grade among the BRIC group of large emerging economies.

A cut to "junk" would force some foreign investors to pull their funds from the country, increasing the cost of credit for Indian firms in overseas money markets.

In January, S&P said the possibility of India losing its investment-grade credit rating had receded somewhat as a result of economic reforms undertaken by the government.

The S&P analysts, who attended the meeting, could not be contacted. (Writing by Rajesh Kumar Singh; editing by Tony Munroe and Simon Cameron-Moore)