Moody's: Domestic thrust key to lowering c/a deficit

MUMBAI Fri Feb 15, 2013 11:56am IST

A shopkeeper poses for a picture as he counts currency notes at his shop in Jammu May 16, 2012. REUTERS/Mukesh Gupta/Files

A shopkeeper poses for a picture as he counts currency notes at his shop in Jammu May 16, 2012.

Credit: Reuters/Mukesh Gupta/Files

Related Topics

MUMBAI (Reuters) - India will have to pursue domestic policy initiatives to help achieve any near-term improvement in its current account deficit as global growth may only be slightly better in 2013 and commodity prices are unlikely to ease sharply, Moody's Investor Service said.

While recent government moves to cut subsidies and woo foreign investment would help narrow the external deficit, these policies need to be persisted for any significant success, it said in a note dated February 14, issued just two weeks before India's annual budget on February 28.

India posted its second highest ever monthly trade deficit of $20 billion in January as imports surged to record highs, piling pressure on a widening current account deficit and limiting scope for the central bank to cut interest rates for an economy expanding at its slowest pace in a decade.

The current account deficit hit an all-time high of 5.4 percent of gross domestic product in July-September due to slowing exports and heavy oil and gold imports. The gap is expected to widen further in the subsequent quarter, data for which is due in March.

Moody's said it would be watching the assumptions underlying India's budget deficit target for the new fiscal year that begins on April 1, as well as the expenditure and revenue policies announced in order to meet that goal.

"Policies that trigger private investment and curb inflationary pressures in the near term are more likely to help narrow the account deficit," it said.

"Deficit targets based on an assumption of accelerating growth rates are more likely to be missed, leading to higher government borrowing requirements and likely inflationary pressure, both of which have negative implications."

The rating agency will also monitor whether the policy changes shift the composition of current account financing in favour of foreign direct investment, or whether external debt inflows accelerate faster than investment flows.

"If funding for the current account deficit shifted away from external debt and towards foreign direct investment, the sovereign credit profile would benefit," it said.

Moody's has a Baa3 rating for India with a stable outlook.

(Writing by Ranjit Gangadharan; Editing by Anand Basu)

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

Healthcare Corruption

REUTERS SHOWCASE

Short of Expectations

Short of Expectations

Apple revenue lags Street's view despite strong China growth  Full Article 

Mircosoft Results

Mircosoft Results

Microsoft revenue rises, profit falls as Nokia absorbed  Full Article 

Deal Talk

Deal Talk

Exclusive - Lupin, U.S. firms weigh bids for GSK's mature drugs: sources  Full Article 

Relief For Sahara

Relief For Sahara

Supreme Court could allow Sahara boss to conduct asset sale talks, company says.  Full Article 

Classifying Banks

Classifying Banks

RBI to start announcing too-big-to-fail banks in Aug 2015  Full Article 

Food Scandal

Food Scandal

Starbucks, Burger King dragged in as China food scandal spreads.  Full Article 

Reuters India Mobile

Reuters India Mobile

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