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K.R. Srivats

NEW DELHI, Sept. 24

INTERNATIONAL rating agency Standard & Poor's decision to lower India's long-term rupee debt from investment grade to "junk" could slow down foreign portfolio inflows into the country, according to the outgoing President of the Associated Chambers of Commerce and Industry of India (Assocham), Mr K.K. Nohria.

Mr Nohria, however, felt that the rating agency's move will have very minimal impact on the borrowing costs of Indian corporates that are keen to tap overseas markets for debt resources.

"The current trend is that there are hardly any major issuance of debt instruments by Indian companies in foreign markets. I think the rating agency's move will have a minimal impact on the borrowing cost," Mr Nohria told Business Line here.

Commenting on the performance of the manufacturing sector, the Assocham President said that the manufacturing sector's performance in the current year is much better than last year.

"I am confident that industrial growth will touch the 5 per cent mark in the current fiscal," he said.

Mr Nohria said that the better performance comes on the back of higher capacity utilisation in certain industries, especially in the core sector.

"There has been a lot of idle capacity in certain sectors in the last few years. With such an idle capacity, it would not be correct to foresee investments in those areas in the next few years. I don't see much foreign investment, except in sectors such as hydrocarbon, coming into the manufacturing sector in the short term," he said.

On Assocham's views on the existing curbs on foreign direct investment (FDI) in the retail sector, Mr Nohria said, "the chamber members would have been pleased if the N.K. Singh panel had recommended atleast a limited opening of the retail sector for foreign investment."

He also made a case for the Government to revert to a regime of taxing companies on the dividends distributed by them.

"We have always maintained that the earlier dividend distribution tax is a better system for taxation of dividends. Assocham has also written to the Finance Minister, Mr Jaswant Singh, to bring back the system of imposition of dividend distribution tax on companies," Mr Nohria said.

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