'Agencies wrong in downgrading India'

Prime Minister’s key economic advisor has said that there is no case for lowering India’s credit rating and global agencies need to look at the international scenario before taking any rating action.

The Chairman of Prime Minister’s Economic Advisory Council (PMEAC), C Rangarajan said, “The rating agencies also need to recognise that we have taken some strong actions in the recent period ... therefore I believe the agencies do not have a strong basis for reducing India’s credit rating.”

He added, “The rating agencies need to judge the performance of India’s economy in the context of what is happening in the world ... I believe attitude of rating agencies will undergo a change.”

Credit rating agencies like Standard & Poor’s have threatened to lower India’s credit rating in 24 months to ‘junk’ grade, if it failed to carry out requisite economic reforms.

Besides, they also lowered the growth projections for the current fiscal and reduced the outlook to “negative.” Even the Reserve Bank has cut its growth outlook for the current fiscal to 5.8 per cent, from the earlier projection of 6.5 per cent.

Admitting fiscal deficit remains a problem, Rangarajan said, “India is one of the few
countries which have been able to reduce the fiscal deficit from a very high level from what it was few years ago.”

Although the government had pegged fiscal deficit for the current financial year at 5.1 per cent in the budget, it is now targeting to rein in fiscal deficit to around 5.3 per cent of GDP.

In the past few weeks, the government has relaxed FDI norms, including opening up retail, insurance, and pension sectors to attract foreign investment.

S&P in its recent report had said that there was one-in-three likelihood of rating downgrade for India if “the country’s economic growth prospects dim, its external position deteriorates, its potential climate worsens, or fiscal reforms slow”.

Rangarajan however admitted that rating agencies’ observations do push up borrowing costs for Indian firms.


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