India on Monday made a strong pitch for a sovereign ratings upgrade to Standard and Poor’s (S&P) based on strong indicators such as low inflation, improvement in fiscal space and current account deficit, but a lot may still depend on the pace of economic reforms, critical to aid a turnaround in the economy.
The government’s hardsell for an upgrade came on a day when latest national income data showed that gross domestic product (GDP) growth has slowed to 7% in April-June from 7.5% in the previous quarter, dragged down weak growth in most sectors.
Chief economic adviser Arvind Subramanian, who made a presentation to visiting S&P officials, underlined that backed by strong reform measures, the country’s growth potential was strong, and that the government was committed to implementing the good and services tax (GST) at the earliest.
Moody’s, another US credit rating agency, has warned that deficient summer rains and slow pace of reforms could likely pull down GDP growth to 7% during 2015-16, lower than 7.5% as earlier forecast.
Recently its analytics arm Moody’s Analytics, warned that India’s economic prospects faces new hurdles amid falling investments, and medium-and-long-term growth would suffer without sufficient and quick reforms.
The government’s plans to deal with any impact emerging out of the turbulence in the Chinese economy and the devaluation of the yuan would play an important role in determining S&P’s decision, sources said. Officials from the rating agency were also keen to know about the government’s plans on the same, they added.
S&P accorded ‘BBB-’ rating, a notch above “junk” grade, to India’s sovereign bonds, even as it maintained a “stable outlook” for the economy. Subramanian also highlighted the government’s signature ‘Make in India’ campaign and other social security schemes during the meeting. India was committed to bring down fiscal deficit to 3% of GDP, he said, adding that the gold imports were in control.
Hasmukh Adhia, secretary, department of financial services, who will take over as the revenue secretary, in his presentation focused on several measures taken by the government to reform the banking sector while improving accountability. With a view to strengthening public sector banks further, the finance ministry has also increased the allocation for capital infusion in state-owned lenders to Rs 25,000 crore in 2015-16 from Rs 7,940 crore last fiscal.
Read:GDP growth slows to 7% in April-June quarter
Infrastructure sector growth slows to 1.1% in July