S&P affirms negative rating for India

NEW DELHI, NOV. 20. The international credit rating agency, Standard and Poor's today affirmed negative ratings for local currency of India while pointing out that it could be lowered further if current negative fiscal and debt trends continued.

``The ratings could be lowered if current negative fiscal and debt trends continue or if the Government fails to stimulate economic growth through deeper structural reforms," S&P said in a statement issued from Singapore.

``Many encouraging announcements in the current year's budget designed to improve growth prospects remain unimplemented including steps to loosen unworkable labour laws and to introduce liberalisation into agricultural sector," it added.

The agency affirmed its double BB foreign currency and tripple BBB minus/A-3 for local currency long and short term sovereign credit ratings. The outlook remains negative.

The outlook reflects the continued deterioration of government's financial profile with persistently high fiscal deficit resulting in rising burden of public debt.

``Failure to undertake structural reforms in a timely manner has eroded the margin of error for policymakers to avoid macroeconomic instability," it said.

The Government's already low level of fiscal flexibility (interest payments are projected to consume about half of the Central Government revenue this year) might worsen if the current deceleration in GDP growth persists, it added.

Growing government borrowing, according to S&P, limits the resources available to the private sector, constraining GDP growth prospects and the pace of poverty alleviation.

Lower economic growth, in turn, could result in weak tax revenues, larger fiscal deficits and rising debt trajectory, the agency added.

``Stronger political leadership on economic matters could restore policy momentum and confidence, putting GDP growth on a higher and more sustainable path," it said.

Aggressive privatisation and implementation of proposed legislation to control fiscal deficits could curb the growth of public debt, S&P said, adding such measures, in tandem with a widening of the tax base to raise fiscal revenues and better cost recovery in public services, especially energy could lead to a revision in the outlook to stable.

The ratings are supported by comfortable external liquidity, sustained by growing foreign exchange reserves and modest debt- servicing payments, it added.

- PTI

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