NEW DELHI: Finance minister P Chidambaram on Friday downplayed the lowering of India’s credit outlook by global rating agency Fitch, saying it is not a cause of worry as economic fundamentals are strong.
“One rating agency has revised the outlook from stable to negative. I do not think that should cause us too much worry. We must look at fundamentals which I believe are still strong, but facing difficulties. I do not think we should worry about outlook,” he said.
Fitch had earlier this week revised the local currency outlook of India to negative from stable because of fiscal pressures.
Distinguishing between a rating and outlook, he said what Fitch has done is to take one step down on the outlook from stable to negative, but the rating remains the same for the country.
“What is outlook? Outlook is simply a view of the future. This is based on the context of the world economy and the Indian economy. Outlook can easily change in a month or two. If the objective conditions change, outlook can also change,” he said.
Mr Chidambaram said when this government came into office, many of the rating agencies have a negative outlook, but they changed it to stable and one or two even to positive. He, however, said change in ratings would have have an impact on interest rates. On fiscal concerns raised by Fitch, he said fiscal deficit targets given in the Budget would be met this fiscal.
“I have said every year. Nobody believed me during the year, but at the end of the year we have not only met (Budget deficit) targets but bettered them also. Even for 2007-08, the actuals are better than the revised estimates. This year also the Budget deficit would be met,” he said. The minister said Fitch and others were talking about off-Budget numbers. “These numbers are off-Budget because we do not have the money to provide for them in the Budget,” he said.
Many analysts have been saying that the deficit numbers would have been much larger had the government included expenditures like oil and fertiliser bonds in its estimates of fiscal deficit.
On deteriorating fiscal position of the Centre, rating agency Fitch earlier this week had revised the outlook on India’s long-term local currency issuer default rating of India, while retaining the rating at BBB-, which indicates low credit risk.
“The revision to the local currency outlook is based on the considerable deterioration in the central government’s fiscal position in 2008-09, combined with noticeable increase in government debt issuance to finance subsidies not captured in the Budget,” James McCormack, Asia Head of Sovereign Rating, Fitch, had said.
Lowering by Fitch would in normal times would have impact only on rupee-denominated securities, but in the present uncertain times it would also have some effect on interest rates on external commercial borrowings, stock markets and bonds, analysts had said.
Another global rating agency Standard and Poor’s had also said last week that it might downgrade India’s sovereign ratings if the country’s rising inflation, widening fiscal deficit and political instability continue in longer-term.
Fitch had said the central government’s deficit may increase from 2.8 per cent of GDP in 2007-08 to 4.5 per cent in the current year on account of higher on-Budget subsidies, interest payments and salary bill of government employees.
Fitch expects bonds issued to fertiliser and oil firms may reach 2 per cent of GDP, implying “an underlying central government’s deficit of 6.5 per cent of GDP or higher”.
Future rating actions, said McCormack, would depend upon whether the fiscal slippage in 2008-09 is reversed, leading to resumption of decline in India’s high government debt ratios.
The rating agency said higher oil prices have raised India’s oil import bill dramatically over the past three years and merchandise trade deficit, which was equivalent to 7.7 per cent of GDP in 2008-09.
“One rating agency has revised the outlook from stable to negative. I do not think that should cause us too much worry. We must look at fundamentals which I believe are still strong, but facing difficulties. I do not think we should worry about outlook,” he said.
Fitch had earlier this week revised the local currency outlook of India to negative from stable because of fiscal pressures.
Distinguishing between a rating and outlook, he said what Fitch has done is to take one step down on the outlook from stable to negative, but the rating remains the same for the country.
“What is outlook? Outlook is simply a view of the future. This is based on the context of the world economy and the Indian economy. Outlook can easily change in a month or two. If the objective conditions change, outlook can also change,” he said.
Mr Chidambaram said when this government came into office, many of the rating agencies have a negative outlook, but they changed it to stable and one or two even to positive. He, however, said change in ratings would have have an impact on interest rates. On fiscal concerns raised by Fitch, he said fiscal deficit targets given in the Budget would be met this fiscal.
“I have said every year. Nobody believed me during the year, but at the end of the year we have not only met (Budget deficit) targets but bettered them also. Even for 2007-08, the actuals are better than the revised estimates. This year also the Budget deficit would be met,” he said. The minister said Fitch and others were talking about off-Budget numbers. “These numbers are off-Budget because we do not have the money to provide for them in the Budget,” he said.
Many analysts have been saying that the deficit numbers would have been much larger had the government included expenditures like oil and fertiliser bonds in its estimates of fiscal deficit.
On deteriorating fiscal position of the Centre, rating agency Fitch earlier this week had revised the outlook on India’s long-term local currency issuer default rating of India, while retaining the rating at BBB-, which indicates low credit risk.
“The revision to the local currency outlook is based on the considerable deterioration in the central government’s fiscal position in 2008-09, combined with noticeable increase in government debt issuance to finance subsidies not captured in the Budget,” James McCormack, Asia Head of Sovereign Rating, Fitch, had said.
Lowering by Fitch would in normal times would have impact only on rupee-denominated securities, but in the present uncertain times it would also have some effect on interest rates on external commercial borrowings, stock markets and bonds, analysts had said.
Another global rating agency Standard and Poor’s had also said last week that it might downgrade India’s sovereign ratings if the country’s rising inflation, widening fiscal deficit and political instability continue in longer-term.
Fitch had said the central government’s deficit may increase from 2.8 per cent of GDP in 2007-08 to 4.5 per cent in the current year on account of higher on-Budget subsidies, interest payments and salary bill of government employees.
Fitch expects bonds issued to fertiliser and oil firms may reach 2 per cent of GDP, implying “an underlying central government’s deficit of 6.5 per cent of GDP or higher”.
Future rating actions, said McCormack, would depend upon whether the fiscal slippage in 2008-09 is reversed, leading to resumption of decline in India’s high government debt ratios.
The rating agency said higher oil prices have raised India’s oil import bill dramatically over the past three years and merchandise trade deficit, which was equivalent to 7.7 per cent of GDP in 2008-09.
