Keen to maintain India’s ‘stable’ rating outlook, the finance ministry reinforced its commitment to fiscal consolidation at a meeting with rating agency Moody’s on Tuesday.
“We discussed inflation, fiscal deficit, the current account deficit and, the stressed banking system,” said Arvind Mayaram, secretary, department of economic affairs about the meeting which came a day after Fitch warned about a possible rating downgrade for India due to slowing growth and fiscal slippage in the run up to the 2014 general elections.
Insisting that the finance ministry did not pitch for a rating upgrade, Mayaram said, “Why would we ask anything? We just told them our story, that’s for them to decide.”
Though meetings with rating agencies is standard practice for North Block, it assumes significance coming in the wake of Q2 data on gross domestic product that estimated growth to have slowed to a decade low of 5.3 per cent. Meanwhile, fiscal deficit has touched nearly 72 per cent of the full year target of Rs 5,13,590 crore between April and October 2012.
With liquidity conditions tightening, the RBI bought back Rs 12,000 crore of government bonds. The finance ministry has pegged the Centre’s borrowing target at 5.75 lakh crore but officials have indicated that it may need to borrow more later this year.
‘Outlook for banks remain negative’
Rating firm Moody’s said its outlook on the Indian banking system over the next 12-18 months remains negative due to a challenging operating environment which is likely to pressure banks’ profits.
It expects the high level of loan growth, at about 15 per cent annually, to continue outstripping internal capital generation, posing a challenge for Indian banks to maintain capitalisation at current levels.