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Chief Economic Advisor Arvind Subramanian said on Wednesday that rating agencies, which have assigned India the lowest investment grade, should upgrade their ratings on the country following the rate cut by the Reserve Bank of India (RBI). According to him, the rate cut and the Budget would boost macroeconomic parameters.
“Now, we have a 50-basis-point rate cut (in two tranches within two months) and I think that is good for the economy and all rate cuts benefits. If the outlook is looking good, the rating agencies should draw their lessons from improving the outlook,” Subramanian told reporters here on Wednesday.
The chief economic advisor said the outlook looks good because it is backed by data, reforms and the Budget, which is likely to push forward growth.
After the Union Budget 2015-16 was presented last week, rating agencies had ruled out any immediate upgrade in India’s sovereign ratings, red-flagging the country’s delayed fiscal consolidation road map. They also warned against any slippages from the “ambitious” disinvestment plan proposed in Budget.
Subramanian told Business Standard that arguments made by the finance ministry on economic outlook should convince the rating agencies.
On the delay in fiscal consolidation road map by the Centre by a year, he said: “It is surprising how people are talking about a higher deficit. We are coming down from 4.1 per cent of gross domestic product (GDP) to 3.9 per cent. The question is whether you should reduce more to go to 3.6 per cent of GDP.
“The case for more consolidation for macroeconomic reasons has weakened. If you take a view that India’s growth is still below its potential, following pro-cyclical fiscal policy is not the best policy. We need more public investment.”
He also noted the rating agencies should look at consolidated fiscal position of India — the Centre and the states taken together. Rating agencies generally take consolidated fiscal deficit into account for assigning rating to a country.
According to Subramanian, there is a case for upgrade. “If you look at a chart in the Economic Survey — Rational Investment Rating Index — India outperforms its investment grade peers.”
The Budget has assumed economic growth rate at 8.5 per cent for 2015-16 against 7.4 per cent in the current financial year, calculated in the advance estimates.
All the three major rating agencies, Moody’s Investors Service, Standard & Poor’s and Fitch, have assigned India the lowest investment grade, with a stable outlook.
