Financial Daily from THE HINDU group of publications
Tuesday, Jul 01, 2003
Financial Daily from THE HINDU group of publications Tuesday, Jul 01, 2003 |
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Credit Rating Industry & Economy - Economy S&P keeps India below investment grade Our Bureau
MUMBAI, June 30 INTERNATIONAL rating agency Standard & Poor's (S&P) today said that India's mounting public debt that leaves almost nothing of the GDP, is keeping the country's ratings below investment grade and its outlook negative. India had lost its investment-grade rating in September 2002 when S&P lowered the local currency to `BB+' and short-term credit rating to `B'. It had, however, retained its foreign currency rating at `BB'. According to the rating agency, the direct debt of the Centre and States and debt guaranteed by them adds up to 95 per cent of the GDP. It said the consolidated general Government deficit of 10 per cent of the GDP is one of the highest of all sovereigns rated by S&P. It, however, said that a GDP growth rate of 5-6 per cent in the medium term and comfortable external liquidity sustained by burgeoning foreign exchange reserves would help cushion the impact of the widening fiscal deficit. It said that the outlook could be revised to stable if the country plugs a leaky tax system and implements legislation to control fiscal deficit that would slow growth of public debt. It has also recommended "full implementation of VAT and cost-recovery of public services, especially energy" to help improve the country's outlook. The agency said the "inability of India's political class, cutting across all parties, to reignite reforms, failure to liberalise land and labour markets" as well as reservations in the small-scale industries sector are holding back macro-economic growth. It said the negative outlook reflected the risk of the Government's debt burden continuing to rise rapidly over the medium term, especially if GDP were to decelerate.
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