The Telegraph
Since 1st March, 1999
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S&P keeps rating on same rung

Mumbai, Jan. 8: Standard & Poor’s (S&P) today retained India’s sovereign rating at junk-bond levels, saying parlous public finances and fiscal frailties overshadow the only bright spot — the swelling forex kitty.

The “BB” forex rating and “BB+” local currency long-term sovereign credit rating and the “B” short-term credit rating will stay, as will the “negative” outlook.

“India’s ratings remain constrained by high public debt and serious fiscal inflexibility. The consolidated debt of the central and state governments is expected to hover around 80 per cent of GDP this year. Interest payments alone are likely to consume nearly half of central government revenues,” director of S&P’s sovereign ratings in Asia-Pacific, Takahira Ogawa, said.

Bankers and financial experts scoffed at the decision, saying there was nothing new in the rating reaffirmation. “It will not have any impact on financial markets,” said ICICI bank official P. H Ravikumar.

Some in the rating business, however, came out in favour of Standard and Poor’s (S&P), arguing the agency had to take call on a situation where a debt recovery tribunal has to consider attaching the Maharashtra government’s treasury and its RBI account.

The tribunal’s compulsion is a measure of the fiscal haemorrhage suffered by state governments, especially when Maharashtra, reckoned as one of the few progressive states for its fiscal prudence, descends into a funk.

The agency slashed India’s rating in September last year to junk status after resistance within the ruling coalition left the privatisation of state-owned firms in a shambles. The setback has dimmed the government’s chances of garnering the Rs 12,000 crore it expected from the sale of PSUs to rein in the runaway fiscal deficit.

Explaining why S&P saw the country’s external liquidity position in a different light, Ogawa said: “The ratings are supported at their current level by India’s ample external liquidity. Record forex reserves now easily exceed six times the level of short-term external debt owed by the public and private sectors.”

S&P’s report card had a word of consolation on the external liquidity position and the raft of recent legislative changes aimed at reforming public institutions. The government saw this as a pat for the efforts to strengthen Sebi and speed up reforms by passing several economic Bills. “But for the fiscal inflexibility, the agency has commended the passage of several laws, including the Securitisation Bill and UTI restructuring Bill,” an official spokesperson said.

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