After failing to convince Standard & Poor’s (S&P) on India’s rating outlook, the finance ministry on Thursday pitched for higher ratings from global rating agency Fitch, citing the good inflow of foreign funds, high returns from markets and steps being taken by the government for fiscal consolidation.
“We pitched for a rating upgrade. We told them (Fitch officials) to look at the FDI (foreign direct investment) inflow at the returns in the market. We said we are committed to capping subsidy at 1.9 per cent of GDP (gross domestic product) this financial year,” said a finance ministry official after a meeting with Fitch representatives here.
Fitch had last rated India in 2010, assigning it a sovereign rating of BBB-, the lowest investment grade, with a stable outlook. Last year, the agency had affirmed the ‘BBB-’ rating for India, indicating a moderate degree of safety in the timely servicing of financial obligations.
Today’s development came a day after Finance Minister Pranab Mukherjee announced he would announce austerity measures to meet the Budget Estimate of fiscal deficit at 5.1 per cent of GDP this financial year. The high fiscal deficit is exerting pressure on the Centre’s finances.
Even after a meeting with finance ministry officials, who mentioned India’s strong fundamentals, S&P had, last month, lowered India’s rating outlook from stable to negative, while retaining the rating at BBB. It had cited poor fiscal conditions and economic fundamentals for the revision in outlook.
The representatives of the global credit rating agency would meet finance ministry officials again tomorrow, and Fitch is likely to come out with an assessment in a month.
Asked if Fitch raised concern on the burgeoning current account deficit (CAD), which stood at four per cent of GDP in the first nine months of previous financial year, the finance ministry official said with the high inflow of foreign funds, CAD could be financed easily.
FDI into India in the previous financial year stood at about $36.50 billion, against $19.4 billion in 2010-11. Besides, foreign institutional investors pumped in about $12 billion into Indian markets, both equity and debt, till May 17 this year, against a mere $2.8 billion in the corresponding period of the previous year. However, lately, Indian stock markets have been in the red, owing to the continued uncertainty in the euro zone. On Thursday, however, the sensex gained, before closing at 16,070.48, just 40.39 points higher than yesterday’s close.
The high CAD is also exerting pressure on the rupee, which has slumped 22 per cent since the beginning of the year. It has plunged to a historic low of 54.49 against the dollar.
