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Tuesday, July 17, 2018

Fitch warns India on weak fiscal,says may cut credit rating if deficit target not met

Last fiscal,govt massively cut expenditure to meet deficit target on warnings by rating agencies.

Written by PTI | Mumbai | Published: August 26, 2013 1:02:57 pm

Stating that the space to contain expenditure is very limited in the second half of the fiscal,global ratings agency Fitch today said the fiscal numbers “look weak” and warned of a downgrade if the country is unable to meet fiscal deficit target.

“India’s fiscal numbers look weak… fiscal slippage could trigger negative rating action,” Fitch Ratings’ head of Asia-Pacific Sovereigns Andrew Colquhoun said on a conference call today.

The agency’s lead analyst Art Woo added that fiscal management is a challenging task.

“The fiscal side is proving more challenging… a slowdown in fiscal expenditure in the second half of the year remains quite challenging,” Woo said.

It can be noted that last fiscal,due to a pressure from international rating agencies threatening to cut the country’s sovereign rating to junk status if the fiscal deficit worsens,the government had massively cut its expenditure to meet its fiscal deficit target.

The P Chidambaram-led Finance Ministry had in fact,bettered the targeted number by limiting the deficit to 4.89 per cent for the fiscal,as against a stated target of 5.2 per cent. For the ongoing FY’14,the government is targeting to get the fiscal deficit number to 4.8 per cent.

In the wake of a huge depreciation in the rupee and doubts over the revenue increase targets,the government has repeatedly asserted that it will be able to meet the fiscal deficit target of 4.8 per cent.

The current account deficit,which is being blamed as one of the primary reasons for the ongoing rupee depreciation,will come in at USD 75 billion in FY14 as against the USD 87.8 billion in the previous fiscal,Colquhoun said today.

“We expect the GDP ratio for India’s current account deficit to be lower than for either of the last two years,” he said.

However,it said that the ongoing battle to hold on rupee level may dent the country’s foreign exchange reserves and added that the total reserves could fall to USD 230 billion from the present level of around USD 278 billion.

Meanwhile,on the rupee depreciation,Colquhoun clarified that Fitch does not wish to say anywhere that the ongoing troubles do not have a bearing from the credit rating perspective.

The rupee touched an all-time low of 65.56 against the US currency last week.

Reports last week had attributed Fitch as saying that the rupee fall does not warrant an immediate action on the country’s rating.

“These pressures have exceeded those of other emerging Asian economies,but Fitch Ratings does not view these developments as a trigger for rating action at this point,” Fitch had said in a note.

India’s fiscal deficit target getting more challenging: Fitch

(Reuters) Fitch ratings said it was getting more challenging for India to meet its fiscal deficit target in the current fiscal year ending March 2014 with revenues slowing.

The rating agency is also monitoring India’s growth,inflation,public finances and the current account deficit (CAD) and its funding,analyst Art Woo said in a teleconference on Monday.

Fitch has a stable outlook on the ‘BBB-‘ sovereign credit ratings. BBB- is the last rung on the ratings ladder above the so-called “junk” status that mainstream investors tend to avoid.

Last week,Fitch said India and Indonesia are not at immediate risk of credit rating downgrades,but warned it could act if the governments of these countries fail to calm current financial market tensions.

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