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Business News/ Politics / Policy/  S&P says India Union Budget has no impact on sovereign ratings
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S&P says India Union Budget has no impact on sovereign ratings

The agency wants to see how the measures will be implemented, especially regarding meeting the fiscal deficit target

Finance minister Arun Jaitley said last week India would stick to the fiscal deficit target of 4.1% of gross domestic product for the year ending in March 2015 unveiled by the previous government. Photo: BloombergPremium
Finance minister Arun Jaitley said last week India would stick to the fiscal deficit target of 4.1% of gross domestic product for the year ending in March 2015 unveiled by the previous government. Photo: Bloomberg

Mumbai: Standard & Poor’s (S&P) said the Indian Union Budget would not have an impact on the country’s sovereign ratings until the agency could see how the measures will be implemented, especially regarding meeting the fiscal deficit target.

Finance minister Arun Jaitley said last week India would stick to the fiscal deficit target of 4.1% of gross domestic product (GDP) for the year ending in March 2015 unveiled by the previous government.

“We think the budget is favourable to credit fundamentals to the extent that fiscal debt and interest ratios are expected to continue to improve," said Agost Benard, an associate director, at Standard & Poor’s Ratings Services during a teleconference with reporters.

“But it remains to be seen how and to what extent will the various measures proposed be implemented and in particular how the deficit targets will be met," he added.

The comments reiterated S&P’s statement last week after the budget. S&P is the only of the three major credit agencies to have a “negative" outlook on India.

Meanwhile, rating agency Moody’s on Monday said the Budget has outlined steps to support faster economic growth, but absence of detailed implementation plan makes it modestly credit positive for India.

“Unless the Budget is followed by a more specific implementation plan, as well as additional measures to address macroeconomic imbalances, its credit effect will be modest," said Moody’s Investors Service senior vice-president Atsi Sheth.

“A smaller fiscal deficit would be credit positive since India’s weakening public finances have fuelled inflation, raised domestic interest rates and heightened macroeconomic imbalances, constraining sovereign credit quality," she said.

The Moody’s credit outlook report said the Budget did not outline specific revenue and expenditure measures to shrink the deficit, suggesting that various options are still under consideration.

“Lack of detail makes it difficult to assess the feasibility and sustainability of the fiscal consolidation effort," it added.

The budget includes measures to support faster economic growth, such as allowing greater foreign direct investment in insurance and defence, increasing spending on infrastructure, and introducing tax incentives for savings and investment.

“These policies are credit positive for the corporate and infrastructure sectors. However, their effect on overall GDP growth will be muted without a decline in inflation, interest rates and regulatory constraints on private investment," Seth said.

Moody’s assigns a ‘Baa3´ rating on India, with a stable outlook.

India’s economic growth is expected to improve to between 5.4-5.9% in the current fiscal, from 4.7% in 2013-14.

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Published: 14 Jul 2014, 12:29 PM IST
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