India rating after Budget: Fitch

Mumbai, Jan 25 | Updated: Jan 26 2005, 05:30am hrs
Fitch Ratings, an international credit rating agency, will review Indias sovreign rating after the announcement of the Union Budget 2005-06 in February.

Fitch will send a team in March to study various financial parameters of the Indian economy so as to review its rating.

Fitch said the sovereign rating of the country is constrained by the gross fiscal deficit that constitutes 10% of the Indian gross domestic product (GDP).

The credit rating agency has pegged the growth rate of the Indian economy at 6-6.5% for the current financial year. Although Indian economy has recorded a moderate growth rate, the net rate would be negative given the bloated fiscal deficit of the country, said Brian Coulton, senior director and head of Asia sovereign ratings, Fitch Ratings.

The current rating outlook on the Indias domestic and foreign currency rating stands at BB+. These ratings indicate a stable outlook and there are no plans to change it till the Union Budget for the next fiscal is presented, he said

He said there needs to be a strong commitment to fiscal consolidation and status of public finances would be a crucial parameter for a view on rating.

Moreover, this Budget would be crucial as it would be the first stint of the United Progressive Alliance (UPA) government at the Budget, he said.

BB+ rating for India falls in the sub-investment grade. This implies higher hurdle in case of rating needs to be upgraded to investment grade, he said.

The combined fiscal deficit of the Centre and state governments of 9-10% was high compared to the level prevailing in Asian countries, he added.

Further, he said, fiscal consolidation does not seem to get high priority on the governments agenda and there are no signs from the government to arrest the deficit. In fact, the action on this front could be taken now as the economy is doing very well, he said.

Mr Coulton recomended a few steps to arrest the bloating deficit of the Indian economy. He said the tax base of the country needs to be broadedned and privatise assets would release resources for investments in public infrastructure. On the spending side, he referred to the prevalance of high level of subsidies in the country and urged the need to devise policies to clamp such subsidies.