The Hindu Business Line : Govt contests S&P line

THE Government has written to the credit rating agency, Standard and Poor's on Friday contesting the assumptions made by it for downgrading India's local currency debt to `junk' status.

S&P had cited concerns of mounting domestic debt and weakening public finances besides criticising the country's leadership for failing to implement reforms.

However, the Finance Secretary, Dr S. Narayan, said on Friday that the downgrade would neither hamper economic growth nor pose any problems to the Government's borrowing programme or foreign investment inflows.

In its comments to S&P provided on Thursday, the Finance Ministry said the Union Government's debt, as a percentage of GDP, had remained constant for the last couple of years. Besides, the Government had not relied heavily on external debt, with close to 98 per cent of the budgeted borrowings being undertaken in the domestic market.

The Government had also expressed confidence about achieving fiscal targets specified in the Budget for 2002-03, which in turn would have a salutary impact on the internal debt of the country.

According to the Ministry, the weighted average cost of market borrowings in the first half of the current year was 7.5 per cent as against 9.44 per cent last year. Such reduction in the cost of borrowings would have a salutary impact on the interest burden in the medium and long term. Moreover, the reduction in the cost of borrowings in the last three years has been achieved with the elongation in the maturity profile of loans.

The Ministry also pointed out the improved industrial and export performance during the period April-July 2002-03 coupled with higher infrastructure growth and decline in the inflation rate.

"At the moment, the kind of growth prospects seen in the economy are what we visualised in the Budget. We have very good export and industrial growth and the major fear of drought receded due to the good spell of rains in August," Dr Narayan said while adding that the downgrade would not pose any threat to the economy.

The Ministry also referred to the improved fiscal performance during the current financial year, which was reflected in lower recourse to borrowings and other liabilities as components of capital receipts. On the back of higher gross tax receipts, the fiscal deficit until July this year amounted to 43.9 per cent of the budget target as against 50.4 per cent in the corresponding period last year.

Dr Narayan also said that the internal debt was not causing any problems either in terms of availability of funds or yields on Government securities.

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