core sector communique

Concern of Credit Rating Agencies on Indian Economy

India’s sovereign debt is usually rated by six major Sovereign Credit Rating Agencies (SCRAs) viz. Moody’s Investor Services, Standard and Poor’s (S&P), Dominion Bond Rating Service (DBRS), Fitch Ratings, Japanese Credit Rating Agency (JCRA) and Rating and Investment Information (R&I).

 The assessment and ratings given by the various agencies differ from each other. In past two years, India’s credit ratings were either affirmed or upgraded by the above mentioned SCRAs. India received these assessments when many nations, including some of the strongest economies, were downgraded during the period. 

 In June 2011, DBRS upgraded the outlook on India’s rating and also appreciated the Government’s efforts towards fiscal consolidation. In their July 2011 report, Fitch affirmed the credit rating issued in the previous year and also appreciated the management of the economy stating that “India’s medium-term economic growth prospects remain strong, as potential GDP growth remains greater that 8%, well above the ‘BBB – ‘ range median’. In December 2011, Moody’s upgraded the rating on India’s sovereign debt in four segments. S&P, in its latest rating of India’s sovereign credit rating on 25th April 2012, affirmed its BBB (-) long term and A-3 short term sovereign rating of India. 

 However, all the SCRAs have note favourably commented on India’s fiscal deficit and debt. In their April 2012 report, S&P had revised the outlook on the long-term rating on India from Stable to negative. In its report, S&P also stated that the outlook has been revised “to reflect at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow”. 

 Government has taken not of the concerns expressed by various SCRAs and is taking necessary steps in this regard. 

 In particular, Government has taken note of S&P’s report released on 25th April, 2012. In this regard, Government is taking a number of measures with a view to reducing the current account deficit, improving growth prospects of the economy, and reducing the fiscal deficit. 

 The measures being taken include steps to restrict the expenditure on central subsidies to under 2% of GDP in 2012-13 and to further bring it down to 1.75% of GDP in the next three years. In addition, Government has made a determined attempt to come back to the path of fiscal consolidation by reducing the budgeted fiscal deficit to 5.1% of GDP in BE 2012-13 from 5.9% of GDP in RE 2011-12. 

 This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in Rajya Sabha today.