Centre eyeing a rating upgrade, too

The Centre is hoping for a ratings upgrade in the near future, Chief Economic Adviser Arvind Subramanian said here on Thursday, after global rating agencies raised the sovereign outlook to ‘positive’, while affirming the rating at the last investment grade – ‘Baa3’.

“I don't want to speculate on what other rating agencies might do or when this will actually be converted into an actual investment upgrade. The focus of the Government is on what needs to be done for the economy’s sake. We hope there is an investment upgrade going forward, but that will not drive the policies,” he said in a press conference.

Subramanian re-emphasised the Centre’s commitment toward fiscal consolidation. The Centre is expected to achieve the fiscal deficit target of 4.1 per cent of GDP during the last fiscal, while it is confident in meeting the Budget target of 3.9 per cent during the current fiscal. The CEA said anything lower than the target would be a ‘bonus.’

Subramanian said unseasonal rains that have led to crop damage will have temporary impact on food prices. “The expectation is that it will not affect medium-term inflation, especially if the forecast for monsoon this year is good. I think that should have an offsetting effect,” he said. The untimely rains and hail have affected Rabi crop in around 100 lakh hectares in 14 States.

Commenting on the outlook upgrade by Moody’s, Rohini Malkani, economist with Citigroup India, also expressed hope for a ratings upgrade in the near future. “Going forward, in the near term, we expect an outlook revision by both S&P’s and Fitch, while in the medium term, we believe that ongoing structural reforms, particularly on taxation, could catalyse a sovereign ratings upgrade,” she said.

In a note, Sonal Varma and Aman Mohunta of Nomura expressed surprise over the outlook upgrade as the Government had pushed its medium-term fiscal consolidation path by a year in the recent Budget. Their analysis on the recent State budgets suggests no fiscal consolidation on a general government basis, i.e. Centre plus State-level.

However, “We agree that India’s economic fundamentals are improving with the government focussed on boosting investment and productivity and the Reserve Bank of India focussed on keeping inflation low. This policy combination should ensure growth with macro-stability in the coming years and should make India stand out, relative to its peers. Overall, the outlook change is encouraging and will be a positive surprise for the markets,” note said.

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