The Hindu Business Line : Focus on fiscal consolidation: S&P

International rating agency Standard & Poor's has suggested that India continue to work on fiscal consolidation that would help it bring deficits below the 8 per cent level on a sustained basis.

This would put the high debt burden on a steady decline. Reduced deficit and debt burden, coupled with strong growth trajectory, could help India to move on to the investment grade, according to Mr Ping Chew, Director (Sovereign, International Public Finance and Financial Services Ratings) for Asia. The rating agency had assigned BB+ to India, giving a positive outlook. The next grade, BBB+ considered to be a benchmark grade, would make India investment grade, which assigned a quality tag.

Fiscal weakness, worst

Addressing a press conference here on Friday on the sidelines of the 39th annual meeting of ADB's Board of Governors, he said India's fiscal weakness was one of the worst among the rated countries, leaving it vulnerable to any decline in growth rates or an increase in interest rates.

Despite numerous setbacks in economic policies, like the inability to sell off state enterprises and liberalise the labour markets, India could register some success in reforming the economy.

"The chaos in banking during the recent strike at the State Bank of India and unreliable power supply illustrate the still-developing operating environment," he said.

Rising oil, interest rates

S&P had retained its growth forecasts for all the major economies in the Asia-Pacific region, notwithstanding the rising oil prices and interest rates.

"It seems likely that oil prices and rates are being driven higher in large part by strong global economic growth. So long as this is the case, the risks to global economic growth will be low," he said.

He, however, cautioned that an oil-supply shock could mar the largely benign picture.

It also projected further increase in interest rates in many countries in Asia. But this trend should not choke off economic growth in the region. Tighter monetary policy in the developed world, particularly in the US, would put pressure on Asian central banks to follow suit.

Oil price hike imminent

S&P has said that India could be forced to raise its minimum oil price later this year. It reminded that India had to issue oil bonds to fiscalise the losses at the state oil companies.

Admitting the fact that passing on the burden to consumers would result in some inflationary pressure on the economy, Mr Chew said in the positive impact of a healthy fiscal position on domestic investments in the long-term often outweighed any inflationary risk.

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