S & P To Review India'S Rating Next Month

Standard & Poor's (S&P) has hailed the maiden budget of the BJP-led government and indicated that it would review the country's soveriegn rating some time next month when its analysts are expected to visit the country.

S&P officials said here yesterday that: "This review does not necessarily imply a downgrade. It could either be to affirm the current rating or another upgrade. No downgrade is likely to take place in the medium term," they added. Currently, the country's sovereign rating is BB+ with a negative outlook.

"This negative outlook does not imply that the country is under any kind of credit watch," they added. The rating outlook was changed from `stable' to `negative' after the nuclear explosions carried out by the government and the subsequent imposition of sanctions by the US, Japan and Australia.

This changed rating profile for India, the officials said, could lead to an increase in the costs of raising funds for independent power producers and other infrastructure project promoters planning to raise external commercial borrowings. But. this technically should not be a problem since costs could eventually come down in the international financial markets, they added.

Reacting to the budget, S&P director Rick Shepherd said "the thrust on infrastructure is good and a bold initiative." He said that the government's thrust on fiscal continuity was good, "but we have to see whether this momentum can be sustained."

He said that the government's move to divest up to 26 per cent in public sector undertakings (PSUs) was a necessary step and would help bring down the fiscal deficit in the short term. However, such divestment would result only in a one-time inflow of funds. " Our main worry is the revenue deficit which at 3 per cent of the gross domestic product is still on the high side," he said added.

The government would, therefore, have to find methods of increasing tax revenue base to meet the shortfall in the revenue deficit after next year, when the divestments were completed, he added.

The S&P team currently in the country is also expected to carry out shadow ratings of some of the state electricity boards on behalf of some independent power producers. But such ratings would not be made public since they were being done exclusively for a client.