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Pranab rejects S&P's India downgrade threat

Finance minister Pranab Mukherjee today rejected Standard and Poor's warning to downgrade India's credit rating, citing division of roles between Sonia Gandhi and 'unelected' PM Manmohan Singh.

business Updated: Jun 11, 2012 21:37 IST
fiscal deficit,current account deficit,Standard & Poor's

Citing division of roles between Sonia Gandhi and 'unelected' Manmohan Singh, global agency Standard and Poor's on Monday threatened to downgrade India's credit rating on projections which were totally rejected by finance minister Pranab Mukherjee.

In a strong statement, Mukherjee said the government is fully seized of the situation and expressed confidence that there will be a turnaround in the country's growth prospects in the coming months.

"This (S&P report) is not based on a fresh rating action... Between April 2012 and now there are no significant events to indicate that the economy's vulnerability to shocks has increased, though the growth numbers for the fourth quarter 2011-12 have come below the expectations," he said.

He also dismissed the S&P's contention that India could be the first BRIC nation to falter and fall below investment grade in the ratings.

The S&P in its report said that the crux of the current political problem for economic liberalisation is the nature of leadership within the central government and not 'obstreperous' allies or an 'unhelpful' opposition.

"Slowing GDP growth and political roadblocks to economic policy making could put India at risk of losing its investment grade rating," the S&P said in its report -- Will India Be The First BRIC Fallen Angel?

Standard and Poor's, which had lowered India's rating outlook to 'negative' from 'stable' in April, said the Congress party is divided on economic policies and there is substantial opposition within the party to any serious liberalisation of the economy.

The government on Monday said it is taking steps to deal with economic issues like fiscal deficit and current account deficit (CAD), a finance ministry official said while responding to the threat of Standard & Poor's to lower India's rating.

"Government is taking lot of steps to ensure that Current Account Deficit (CAD) is under control, fiscal deficit is under control," finance secretary RS Gujral said when asked about his comments on the threat of S&P to lower India's investment-grade rating.

Citing economic slowdown and political roadblocks to policy-making, rating agency S&P has warned India could become the first BRIC nation to lose investment-grade rating.

"Setbacks or reversals in India's path toward a more liberal economy could hurt its long-term growth prospects and, therefore, its credit quality," S&P's credit analyst Joydeep Mukerji said in the report.

Mukherjee recalled that on April 25, 2012 S&P had issued India's sovereign credit rating reaffirming its long-term sovereign credit rating at BBB(-). It had, however, revised India's outlook to negative from stable.

The S&P report said, "paramount political power rests with the leader of the Congress party, Sonia Gandhi, who holds no Cabinet position, while the government is led by an unelected Prime Minister Manmohan Singh, who lacks a political base of his own".

It said the division of roles between "a political powerful" Congress President and an "appointed" Prime Minister "has weakened the framework for making policy, in our view."

The S&P report led to substantial erosion of gains in the stock market in early trade and the BSE Sensex finally closed 51 points down. It also left a negative impact on rupee against dollar.

First Published: Jun 11, 2012 19:04 IST