Moody’s Revises Up India’s Sovereign Currency Rating (27-Jul-2010)
Riding on the Indian economy’s resilience and its commitment in adhering to fiscal prudence, global rating agency Moody’s Investors Services has upgraded India’s sovereign currency rating from ‘Ba2’ to ‘Ba1’. Besides lifting up the prospects for rupee, economists believe that this upgradation will enable the country in attracting more capital inflows, going forward. On the other hand, Moody’s has left the foreign currency ratings unchanged at the current levels of ‘Baa3’, which is the lowest investment grade.
After registering an economic growth of over 9% for three consecutive years, the domestic economy could manage to expand only at 6.7% during 2008-09 due to the global economic slowdown. However, government’s numerous fiscal stimulus packages involving reduced tax rates and increased public expenditure fostered staggering growth in industrial output. Consequently, Indian economy grew by 7.4% in 2009-10, better-than earlier government expectations of 7.2%. The domestic economy grew by 8.6% in the fourth-quarter of the previous fiscal year, reflecting the robustness of economic recovery. The Prime Minister’s Economic Advisory Council (PMEAC) has raised its growth forecast to 8.5% during the current fiscal from its earlier projection of 8.2%.
With the pace of economic expansion poised to ascend into the higher growth trajectory, government is in the process of exiting from the fiscal stimulus that it offered during the recessionary cycle to help the vulnerable sectors of the economy. As far as the staggering fiscal deficit is concerned, the Finance Minister is hopeful of bringing it down to 5.5% in this fiscal and to 3% of GDP by 2013-14. Government had planned to cut fiscal deficit to 3% of GDP by 2008-09, but it instead soared to over 6% on government’s fiscal stimulus packages.
Overall, Moody’s has exuded confidence that a slew of measures taken by the government in this fiscal year will help the economy in reducing the staggering budget deficit to the desired levels. Government’s measures like divestment in PSUs, historic fuel subsidy reforms and the proposed tax reforms in the form of GST and DTC will help the government to keep a tab on the fiscal deficit.
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