Having taken a slew of “bold and tough” decisions over the last few months to prune subsidies, contain the fiscal deficit and promote growth, the government on Thursday pitched for a sovereign rating upgrade at a meeting here with Standard & Poor’s (S&P) representatives in view of the evolving turnaround in the country’s macroeconomic environment.
Last year, with the economy plagued by high inflation, decelerating growth, a burgeoning fiscal deficit owing to rising subsidies and a widening current account deficit (CAD) due to a slowdown in exports and spurt in gold imports, S&P scaled down India’s sovereign credit rating outlook in April from ‘stable’ (BBB+) to ‘negative’ (BBB-) — the lowest investment grade and just a step away from ‘junk’ status — and warned the government of a ‘one-in-three’ chance of a rating downgrade to ‘speculative’ within the next 24 months.
With a number of fiscal and other reforms measures in place since then through executive actions, a confident Economic Affairs Secretary Arvind Mayaram, who led the discussions with S&P representatives here, argued for an upgrade as there was no case for a rating downgrade in the light of the bold and tough decisions taken by the government, such as reducing subsidies on petroleum products.
Speaking to reporters after the meeting, Dr. Mayaram said: “I think there is a case for an upgrade because we have taken the kind of decisions that most of the countries in the world have not been able to take. This country has shown its determination to put the economy back on track. We believe it will happen and there is no doubt about it…We have spoken to them convincingly. We have shown that the reforms is on track”.
On S&P’s concern over the twin deficits, inflation and subsidies, the DEA Secretary countered saying that India had started phasing out subsidies. “Petroleum subsidy is around 36 per cent in developed countries and there is no attempt there to reduce that. We are working to eliminate some of the fuel subsidies,” he said.
Apart from pruning subsidies, Dr. Mayaram said that the S&P representatives were also told about the government’s resolve to check the fiscal deficit and speed up mega projects to spur growth.