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Journalism of Courage
Global rating agencies have started taking note of India8217;s progress on the economic front. Standard 038; Poor8217;s has finally revised the outlook on India8217;s sovereign credit rating to positive from stable, citing improving prospects of the country handling its debt burden.
However, the US rating agency has affirmed India8217;s BB-plus rating, which is highest notch in the non-investment grade. This rating is considered as junk grade by foreign investors. 8216;8216;The outlook revision reflects improved prospects of a stabilising debt burden based on greater effort across all levels of governments to consolidate their fiscal position,8217;8217; S038;P credit analyst Ping Chew said.
Analysts said the upgrade in India8217;s rating outlook will boost foreign investments as most investors look at a country8217;s rating before putting their money. China, India8217;s economic rival in Asia, has got investment grade from S038;P.
S038;P said tax measures, including expanding service and value-added taxes and tightening tax administration, should result in more buoyant government revenues, especially as the highly taxed industrial sector was growing more robustly.
Combined with control of operating expenditure, more efficient spending, and implementation of fiscal responsibility laws, India should see a steady reduction of general government deficits and a falling debt burden, it said.
Chew said S038;P expected incremental structural reform would raise India8217;s gross domestic product trend growth to more than 7 per cent. 8216;8216;Further liberalisation of the economy and infrastructure improvements will help India8217;s trend growth. Such reforms coupled with continued fiscal consolidation will help India achieve investment grade over time,8217;8217; he said. 8216;8216;On the other hand, if the fiscal consolidation stalls or the reform agenda derails, the outlook could be revised to stable.8217;8217;
However, projecting the country8217;s consolidated debt at 90 per cent of GDP in 2006 with interest payments consuming one-third of general government revenue, it said, 8216;8216;India8217;s incipient fiscal consolidation addresses its principal credit weakness. Public finances remain among the worst of rated sovereigns, leaving it vulnerable to any secular decline in growth rates or an increase in real interest rates.8217;8217;
Pointing out the deficiencies of the country8217;s financial system, the rating agency said 8216;8216;The chaos in banking during the recent strike at the SBI, and the unreliability of power supply also illustrate a still-developing operating environment, including the payment system, and remaining challenges in effective administration and reforms for the labour market and public sector.8217;8217;
Bond prices extended gains after the news, and the yield on the benchmark 10-year bond eased to 7.34 per cent from 7.39 per cent earlier. 8216;8216;Further steps towards fiscal consolidation could auger well for India8217;s rating and support the outlook on bonds and currency from a medium-term percepective,8217;8217; said an analyst.
