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Rangarajan expects S&P to upgrade India's rating

business Updated: Apr 27, 2012 19:44 IST

Confident of improvement in economic growth to 7-7.5 per cent in the current fiscal, a key advisor to the Prime Minister today expressed optimism that rating agency Standard & Poor's would reverse and even upgrade India's long term credit outlook going forward.

"Some concerns expressed by S&P will also be resolved during the year. I would expect S&P to reverse and perhaps upgrade rather than downgrade," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said on the sidelines of AMCHAM event here.

Earlier this week, US ratings agency S&P lowered India's rating outlook to negative and warned of a downgrade in two years if there is no improvement in the fiscal situation and the political climate continues to worsen.

The lowering of outlook from stable (BBB+) to negative (BBB-) is expected to make external commercial borrowings expensive for Indian Inc.

Rangarajan said Indian economy would grow faster in the current fiscal and the government will make efforts to contain fiscal deficit at the budgeted level of 5.1 per cent.

"I expect the growth rate in current fiscal to improve. I expect growth rate in 2012-13 to be between 7 and 7.5 per cent," he said.

The economic growth in the previous fiscal is estimated to have slowed to a three-year low of 6.9 per cent. The economy had grown at a rapid pace of 8.4 per cent for two consecutive years (2009-10 and 2010-11).

He said that the economy has the potential to grow at 9 per cent going forward as savings and investments rate would improve.

Rangarajan further said inflation continues to remain high and that monetary and fiscal policies should aim at reducing it to 5-6 per cent. He said average inflation for 2012-13 would be around 6.5 per cent.

"The inflation rate for the current fiscal will be significantly lower than what we had seen last year and this could lead to an easing of the monetary policy during the course of the year," he said.

Rangarajan further said some adjustments need to be done in the case of administered prices of petroleum prices as global crude prices are ruling very high compared to domestic prices and that subsidies need to be contained.

"Some adjustment will have to be made during the year that will push up inflation a little bit but that is necessary to do from the long run point of view of the country," he said.

He said foreign direct investment (FDI) into the country are showing signs of improvements, though foreign institutional investment (FII) is still volatile.

"We must continue to maintain the environment in which the foreign capital will come into the country. We should allay the fears and concerns of people who want to invest in India and we will take appropriate action in that regard," he said.