INTERVIEW - India's rating faces no significant pressure - S&P

HONG KONG Mon Jul 6, 2009 5:08pm IST

A view of the Indian parliament building on the first day of the budget session in New Delhi in this February 2006 file photo.  REUTERS/B Mathur

A view of the Indian parliament building on the first day of the budget session in New Delhi in this February 2006 file photo.

Credit: Reuters/B Mathur

Related Topics

HONG KONG (Reuters) - India's BBB-minus sovereign rating, placed on negative outlook in February, does not face any significant rating pressure despite a sharply higher fiscal deficit unveiled by the government in Monday's budget, Standard & Poor's analyst Takahari Ogawa said.

Ogawa said the size of the revised fiscal deficit was within the expected boundary, but added he was disappointed with a lack of details in the budget on fiscal consolidation and privatisation plans.

The government said on Monday its 2009/10 fiscal deficit would widen to 6.8 percent of GDP, a 16-year high, as it stepped up spending on infrastructure and gave more help to farmers and the poor.

"I don't think downgrade pressures have increased -- it has only been a few months since we changed the outlook," Ogawa told Reuters in an interview after the budget for Asia's third-largest economy was unveiled.

Indian stocks fell and bond yields spiked in reaction to the new deficit figure, which was much larger than some investors had expected. Markets had expected the fiscal deficit to swell to up to 6.5 percent from 6.2 percent the previous year.

In February, Standard & Poor's cut its outlook on India's long-term sovereign credit rating to "negative" from "stable", citing an "unsustainable" deterioration in the country's fiscal position.

The ratings agency called India's weak fiscal position "the single-largest negative factor for the sovereign ratings."

But Ogawa said: "In terms of the size of the fiscal deficit there was no surprise (in Monday's budget). Yes, this is within the boundary of our expectation. "

Fitch Ratings, which has a BBB-minus rating on India's foreign and local debt, said in February India's fiscal deficit and government debt ratios are outliers compared with those of its peers.

It said India's external financing burden was modest while retaining the stable outlook for its foreign debt rating but cutting its outlook on local rating to negative from stable.

S&P's Ogawa said he had hoped for more details in the budget on fiscal consolidation and government plans to selldown stakes in state-run firms, which would reduce budget pressures.

"How the government intends to handle fiscal consolidation is one of the important issues which at this stage is not answered yet," he said.

Ogawa his agency would focus on the contents of the 13th Finance Commission panel report and views on Fiscal Responsibility and Budget Management Law.

However, he did not say whether a rating action would follow after the budget.

Moody's has an investment-grade Baa3 foreign currency rating and a junk Ba2 domestic rating for India. The outlook is stable.

The agency has warned that India's rating could be lowered if it fails to progress on fiscal consolidation or if there was a sustained reversal of foreign capital inflows.

Meanwhile, market analysts said the action of rating agencies would depend on the government's intention to cut its fiscal deficit.

"If they just announce a large fiscal deficit without a committment to a control in fiscal performance, there is a risk of a sovereign downgrade," said Sebastien Barbe, head of em research and strategy, Calyon, Hong Kong.

(For more news on Reuters Money click in.reuters.com/money)

(For full coverage on Budget 2009 click here)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Pricing Controls

REUTERS SHOWCASE

India-China Relations

India-China Relations

India says to defend China border after standoff ahead of Xi visit.  Full Article 

Importing Iron Ore

Importing Iron Ore

As mining curbs bite, India offers market to glut-hit iron ore.  Full Article 

Lower Output

Lower Output

IOC cuts refinery output as rains hit fuel demand - source.  Full Article 

Drug Approval

Drug Approval

Epirus, Ranbaxy win India approval for arthritis drug copy.  Full Article 

Farming and Technology

Farming and Technology

Climate smart farmers get tech savvy to save India's bread basket.  Full Article 

Rajan Speaks

Rajan Speaks

RBI chief Rajan says limiting reliance on foreign debt.  Full Article 

India-Vietnam Ties

India-Vietnam Ties

India tightens Vietnam defence, oil ties ahead of China Xi's visit.  Full Article 

Debt & Equity Deal

Debt & Equity Deal

KKR to lend $175 million to GMR Infrastructure - source.  Full Article 

Preparing for IPO

Preparing for IPO

Alibaba boosts IPO as demand strengthens.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage