‘A possible move to replace FRBM Act will help ensure fiscal prudence in the medium terGroupe Danone, FT among 23 proposals cleared by FIPBm’.
Rating agency Standard & Poor’s today said fiscal pressures would weigh on India’s credit quality.
In a report released today, the agency said that a resumption of a timely and sustainable fiscal consolidation plan that resulted in lower debt and interest burden, and further reforms to boost economic growth could improve India’s sovereign ratings.
S&P pointed out that it had lowered the outlook on India’s sovereign rating due to the fiscal deterioration associated with providing support to the economy. The stimulus packages and other spending, including the award of recomm-endations of the Sixth Pay Commission and the farm loan waiver scheme, had resulted in the fiscal deficit rising to 6 per cent of GDP in the revised esti-mate for 2008-09. It was budgeted at 5.5 per cent of GDP when the Interim Budget was presented in February.
“The negative outlook reflects our view that India’s deteriorating fiscal position is not sustainable and will not remain consistent with its current rating category unless there is early fiscal consolidation. Any further fiscal slippage, or a marked decline in external liquidity indicators, or policy measures that weaken economic growth prospects could lead to a downgrade of the ratings,” the global rating agency said in a report covering economies in the Asia Pacific region.
While remaining bullish on the growth prospects, the agency, which had lowered the outlook on India’s sovereign rating to negative, said the economy faced risks due to a slower global recovery and higher oil prices. It has projected a growth rate of 6 per cent for 2009 and 7 per cent for 2010.
The rating agency said that the contents of the Union Budget and fiscal balances would be a key factor in deci-ding the sovereign ratings.
More From This Section
It has projected the combined fiscal deficit of the Centre and the states, including off-Budget items such as oil and fertiliser bonds, to reach 11.1 per cent of GDP during the current financial year.
“The government might implement more stimulus measures — as predicted in the Interim Budget — which could further increase already-high fiscal deficits,” S&P said. There are other factors that could influence the government’s future fiscal position.
Besides, the disinvestment policy is expected to be another element of the fiscal management plan.
S&P also said that a possible move to replace the current Fiscal Responsibility and Budget Management Act would help ensure the government’s fiscal prudence in the med-ium term. Further, a reform and restructuring of the current price systems for fuel and fertilisers would make the government’s fiscal position vulnerable to global price movements, the agency added.