The Finance Ministry on Tuesday said it is not worried about the threat of ratings downgrade by global agencies like Fitch as it is moving on the right track and will restrict fiscal deficit to 5.3 per cent of the GDP in 2012-13.
“We are not worried. We have been saying we are on right track. But people still distrust us and ask whether we will able to achieve fiscal deficit target... We will adhere to fiscal consolidation roadmap”, Department of Economic Affairs (DEA) Secretary Arvind Mayaram said, when asked about the threat of rating agencies like Fitch to downgrade the country’s rating.
The government has taken a number of steps to restrict the fiscal deficit to 5.3 per cent of the GDP during the financial year, he said, adding that the process would continue in the subsequent years as well.
In view of rising expenditure and subdued growth in revenue collection, the Finance Ministry has already raised the fiscal deficit target to a more acceptable level of 5.3 per cent of Gross Domestic Product (GDP), as against 5.1 per cent estimated earlier.
Fitch, during a recent conference call in Tokyo, had reiterated its threat to downgrade India’s rating against the backdrop of slowing growth, high inflation and rising fiscal deficit.
It had earlier said that the possibility of downgrading the country’s sovereign rating was more than 50 per cent in the next 12-24 months.
Another global agency Standard & Poor’s had last month said that India faces one-in-three chance of rating downgrade in the next two years in case the government fails to push reforms in view of the political gridlock and ensuing general election in 2014.
Fitch as well as Standard & Poor’s have assigned the lowest investment grade rating to India and any downgrade would push it to the ‘junk’ grade making it difficult for corporates to raise finances from overseas markets at competitive rates.
Another leading rating agency Moody’s, however, expressed the hope that India’s growth prospects during 2013 would improve following following withdrawal of support to government by an ‘obstinate coalition partner’ (Trinamool Congress).
India’s economic growth during 2012-13, according to RBI, is estimated to slip to around 5.8 per cent, which would be the lowest in the last decade.
The Finance Ministry too, in mid-year economic review, had lowered the growth projection to 5.7-5.9 per cent from 7.6 per cent estimated earlier.
Finance Minister P. Chidambaram, however, has exuded confidence that growth rate would move up in the next financial year in view of the steps being taken by the government to push reforms.
The Finance Ministry is currently engaged in the process of firming up tax and non-tax proposals for the next financial year which would be unveiled in the Budget, to be presented in the Lok Sabha on February 28.
The government is also looking into the various recommendations of the Kelkar Committee which had suggested a road map for fiscal consolidation.
The Committee had suggested that slew of measures like phased elimination of LPG, kerosene, diesel and food subsidies to deal with the deteriorating fiscal situation.
The government has taken various tough measures such as raising diesel prices, capping subsidised LPG cylinders and pruning non-Plan expenditure with a view to curtailing government expenditure and containing fiscal deficit.
Several economists during their customary pre-Budget consultations with Chidambaram have pitched for concerted steps to contain fiscal deficit and bring down inflation to around 5 per cent, from 7.24 per cent in November.