India needs good rating from credit rating agencies: Shome

India needs good rating from global credit rating agencies to help bolster foreign capital flows into the country, Union Finance Ministry advisor Parthasarathi Shome has said.

“We need foreign capital and also to prohibit capital outflows. Thus, we need good rating from international rating agencies which always keep a close watch on the fiscal deficit of the country,” Shome said here today at a seminar on Budget 2013-14 jointly organised by St Xavier’s College and the MCC Chamber of Commerce.

The key objective of the Budget has been to reduce the fiscal deficit, which is urgently required, he said.

With the current account deficit (CAD) at high levels, the country needs to attract foreign capital, either through foreign direct investment (FDI) or external commercial borrowings (ECB) route.

Sovereign credit upgrade

Raising hopes of a sovereign credit upgrade, global rating agency Moody’s has recently applauded Finance Minister P. Chidambaram’s Budget 2013-14 saying that it pursues the realistic fiscal consolidation path and is ‘credit positive’.

“India’s Budget pursues realistic fiscal consolidation, a credit positive for the sovereign,” said Moody’s in its credit outlook for the country after the Budget.

Fiscal deficit

Chidambaram in his Budget for 2013-14 proposed to bring down the fiscal deficit to 4.8 per cent of the Gross Domestic Product (GDP) from 5.2 per cent in the revised estimates for the current financial year.

Earlier, ratings agencies like Standard and Poor’s and Fitch had threatened to downgrade India’s sovereign credit rating to junk grade in view of the worsening fiscal position of the government. They also are likely to come out with fresh assessment in the backdrop of the Budget proposals.

Moody’s had assigned BAA3 rating to India, which indicates the investment grade rating with stable outlook.

Direct tax proposals

Commenting on the direct tax proposals in the Budget, Shome said 10 per cent surcharge imposed on those, whose annual income was more than Rs 1 crore, is a step in the right direction to address the fiscal consolidation move.

The marginal rates of taxation on super high-income brackets were higher in countries like Chile, China, UK, Germany and South Africa.

“There was room for increasing the tax rates for them. But it was kept at a lower level,” he said.

Shome said the Budget has done well to increase the excise on SUVs. “This should have been done before.”

Other countries tax large cars heavily, he said.

Shome said in the current fiscal tax revenue would grow by 17 per cent, and 19 per cent in the next financial year.

“International rating agencies are projecting a higher growth for India now. But we are cautious,” he said.

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