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Arun Jaitley
Ministry officers pointed to stronger macroeconomic indicators, lower inflation and improvement in the fiscal and current account deficits.
Official data shows the fiscal deficit for April-July was 69.3 per cent of the full-year target, due to increased capital expenditure. Gross domestic product (GDP) growth for the quarter was seven per cent.
In his presentation to the visiting S&P officials, Chief Economic Advisor (CEA) Arvind Subramanian said the country has strong medium-term growth potential, on the back of persistent economic reforms by the government.
According to the sources, the CEA also expressed the government's commitment to implement the Bill for a national goods and services tax (GST). And, that the country's growth in the current financial year was expected to improve to around eight per cent.
Subramanian based his optimism on macroeconomic stability, a better than expected monsoon and the cumulative effect of reforms.
Sources said S&P inquired about the time line for implementing the GST Bill and the Centre’s earlier plan for a holding company to deal with the problem of stressed assets in the banking sector. Banking secretary Hasmukh Adhia (to now take charge as revenue secretary) highlighted reforms in banking undertaken by the government. He's said to've told the S&P officials that asset reconstruction companies were functioning and there was no need for setting up a holding company to deal with stressed assets.
He also spoke about the government's plan to infuse fresh capital in state-owned banks and added there was no shortage of credit in the banking system.
S&P officials also inquired about plans to deal with the turbulence created by the yuan's devaluation, while expressing concern about slowing of exports and other problems in the external sector.
Subramanian said the fiscal and current account deficits were under control and declining oil prices would help in improving the external sector. The government, he added, was committed to bring down the fiscal deficit to three per cent of GDP over the longer term.
He also reiterated the government's commitment not to take recourse to retrospective amendments of tax laws that might create fresh liabilities. And, gave an elaborate presentation on the various government initiatives like 'Make in India' and social security programmes. He said distribution of the cooking gas subsidy through the direct benefits transfer scheme had saved Rs 12,700 crore so far.
The three major ratings agencies — S&P, Fitch and Moody's — all have the lowest investment grade rating on India's long-term sovereign debt. S&P and Fitch have a rating of 'BBB-' with a 'Stable' outlook; Moody's is 'Baa3' with a 'Positive' outlook.
Meetings between the agencies and government officials are fairly common and help the former get an understanding of the steps to push economic growth.
Earlier in August, Moody's had said it would upgrade India's rating if the government was able to push through reforms, inflation stabilised, the regulatory environment improved and infrastructure investment rose. "India's rating could be upgraded if Moody's expectations of gradual but credit-positive reforms are realised in actual policy implementation and if the recent improvement in inflation, fiscal and current account ratios is sustained," it had said.
