Finance Ministry to push S&P for ratings upgrade on Thursday

Finance Ministry officials will meet representatives from ratings agency Standard & Poor’s on Thursday and impress upon the latter the need for a ratings upgrade by pitching the Narendra Modi government’s commitment to fiscal targets and the reforms carried out so far. 

This comes even as Moody’s, which upgraded India’s long-term sovereign rating in November last year, said in a note on Wednesday that higher oil prices and rising interest rates were raising pressure on India's fiscal and current account deficits. 

In the meeting, to be held in North Block in New Delhi, senior finance ministry bureaucrats, possibly led by Economic Affairs Secretary Subhash Garg, are expected to say that the Centre is committed to meeting the 2018-19 fiscal deficit target of 3.3 per cent of gross domestic product (GDP) and a medium term trajectory which takes them to 3 per cent of GDP.

Sources said that the finance ministry had also provided some data on direct taxes, goods and services tax (GST) and expenditure patterns for the month so far to S&P to assess the fiscal situation. Officials said while the gross tax collections were growing at the required rate of about 14 per cent, the net intake was slow as New Delhi has refunded tax of Rs 850 billion in April-July period.

Meanwhile, Moody’s said in its report that oil prices at current levels will raise expenditures and add to existing pressures on the fiscal position stemming from the lowering of GST rates on a range of consumer goods and a tax cut for small businesses as well as the relatively high minimum support prices set for this year. "Higher oil prices and interest rates will put pressure on the government's budget and the current account. However, growth prospects remain in line with the economy's potential, about 7.5 per cent this year and the next," said Moody’s.

“This robust growth, large foreign exchange reserves, a predominantly domestic funding base, strengthened monetary policy management, and macroprudential regulations on bank lending in foreign currency will broadly contain the credit impact of the higher oil prices and rising interest rates,” it said.

“While the government may cut back on capital expenditures to limit fiscal slippage, as has happened in previous years, such cuts may not fully offset the revenue losses and higher spending on energy subsidies and price support for crops. Moody's therefore sees risks that the central government deficit will be wider than targeted in the short term,” it said.

S&P has kept its lowest investment grade rating on India for over 11 years, with a ‘stable’ outlook. Among the big three rating agencies only Moody’s has been the most optimistic on Asia’s third largest economy after it upgraded its rating in November to Baa3 from Ba1, its lowest investment grade.