Public sector deficits causing concern: Moody's chief

NEW DELHI NOV. 24. The international credit rating agency, Moody's, said today that the problems of fiscal deficit and the mode of its financing would be taken into account while considering an upgrade of India's foreign currency rating.

This was disclosed here by John Rutherford, president of Moody's Corporation, while speaking on the challenges facing the Indian economy. He was addressing the inaugural session of the India Economic Summit organised by the World Economic Forum and the Confederation of Indian Industry.

Conceding that India's foreign currency rating seemed to be improving, he said there was no foreign currency gap.

The various debts of the Indian Government were not foreign currency debts. Besides, the foreign exchange reserves were rising "very rapidly", which was positive from the international perspective.

At the same time, he felt that the problem of public sector deficits and how these were being financed were issues of concern. The productivity of the Governmental sector also had to be improved. Recently, Moody's had stated that it could upgrade India's sovereign rating for foreign currency bonds, debt ceiling and bank deposits due to substantial strengthening of its external financial situation.

Mr. Rutherford said the greatest challenge facing India was two-fold. First, was the need to attract foreign direct investment and, the second, to utilise the allocated funds for the public sector in a more profitable manner.

Pointing out that India could lose out in the highly competitive global economic environment, other corporate leaders urged the Prime Minister to take "bold and courageous" decisions to push reforms to achieve an eight per cent growth.

The industrialist, Rahul Bajaj, stressed that the gap between India and other economies was increasing owing to the absence of second-generation economic reforms.

These included labour issues such as the right to "hire and fire" as well as better infrastructure. But most important was the need for a broad political consensus.

The Infosys chief, N.R. Narayanamurthy, another co-chairman of the summit, underlined the need to take reform measures that were difficult but possible and the need to upgrade education at all levels.

Charles Powell of Bayswater, an adviser to the former British Prime Minister, Margaret Thatcher, said the Prime Minister would have to take bold steps, as there was no second chance. He highlighted the Chinese Government's positive approach to globalisation and their commitment to a market economy in contrast to the Indian Government's mindset.

The CII president, Ashok Soota, said manufacturing was a neglected area of the economy and urged Indian industry to become a factory for the whole world. At present, the manufacturing sector accounted for just 25 per cent of the GDP and it needed to be raised to at least 35 per cent to accelerate economic growth.