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India's credit rating under pressure: Moody's

business Updated: May 28, 2009 22:14 IST

IANS
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India's credit rating is facing growing pressure because of the widening fiscal deficit and the country's increasing dependence on foreign capital inflow, global rating agency Moody's said on Thursday.

"The stable outlook on the ratings has recently faced growing pressure, mainly due to substantial deterioration in the fiscal position amidst a rise in India's dependence on foreign capital flows to drive its investment cycle," Aninda Mitra, a senior analyst at Moody's, said in a report.

According to Mitra, the government's growing financing requirements amid a modest weakening of the country's foreign asset position have already complicated monetary management.

"If the newly re-elected government proves able to quickly outline and sustain a credible programme for reducing consolidated deficits, then the sustainability prospects for general government debt would improve," the report said.

"These trends could boost the outlook for the country's local currency credit ratings," it added.

The Manmohan Singh government, which won a second five-year term this month, is planning to borrow a record Rs.363,000 crore ($76 billion) this fiscal. This move is expected to widen the budget deficit to 5.5 percent of the gross domestic products.

"The inability to meaningfully adjust fiscal policies and push ahead with reforms could pressurise the foreign currency credit rating," Moody's warned.

The government has to push ahead the much-required structural reforms -- rationalisation of subsidies, reduction of price controls and disinvestment -- which had been impeded in the Manmohan Singh government's first term due to the pressures of its allies.

Finance Minister Pranab Mukherjee Wednesday reiterated that the government would continue public spending this year to support its social welfare schemes even as pushing the economic reforms.

On Wednesday, Finance Secretary Ashok Chawla said sustaining economic growth was a "higher priority at this moment" over sovereign ratings.

India has asked the rating agencies to explain the rationale behind their recent warnings on ratings, he said.