India’s Sovereign Ratings May Take a Hit After Interim Budget
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India’s sovereign ratings face the risk of being hit with a downgrade in 2009, after admissions in the Interim Budget that the budget deficit will continue to grow.
Indian sovereign ratings determine the price at which the Union Government can borrow money to finance public expenditure and budget shortfalls.
Finance Minister Chidambaram had pegged the fiscal deficit for the current year at 2.5 per cent of the GDP and the revenue deficit at 1 per cent of the GDP in the 2008 Budget.
India’s sovereign ratings face the risk of being hit with a downgrade in 2009, after admissions in the Interim Budget that the budget deficit will continue to grow.
Indian sovereign ratings determine the price at which the Union Government can borrow money to finance public expenditure and budget shortfalls.
Finance Minister Chidambaram had pegged the fiscal deficit for the current year at 2.5 per cent of the GDP and the revenue deficit at 1 per cent of the GDP in the 2008 Budget.
India’s sovereign ratings face the risk of being hit with a downgrade in 2009, after admissions in the Interim Budget that the budget deficit will continue to grow.
Indian sovereign ratings determine the price at which the Union Government can borrow money to finance public expenditure and budget shortfalls.
Finance Minister Chidambaram had pegged the fiscal deficit for the current year at 2.5 per cent of the GDP and the revenue deficit at 1 per cent of the GDP in the 2008 Budget.
During the Interim Budget speech, Pranab Mukherjee has now raised the fiscal deficit figure to 6 per cent and revenue deficit to 4.4 per cent of the GDP.
But even that could be an underestimation. The Prime Minister’s Economic Advisory Council has already said that the fiscal deficit will be 8 per cent of the GDP – and the figure could grow as more stimulus is needed in the face of a worsening global recession.
The increased size of a future funding programme would make it harder for private sector companies to raise funding, in turn pushing up the rates in general.
International rating agency S&P, short for Standard & Poor’s, has given a downbeat assessment of the news.
“The trajectory of India’s fiscal position has changed to worse … the Indian Governments’ course will not be able to change back to fiscal consolidation mode soon,” said TK Ogawa, Soveriegn & IPF Ratings Director for S&P said in press interviews.
“We will review the ratings after any fresh announcement,” Mr Ogawa said, indicating that ratings are being actively monitored amid heightened global economic turmoil.
Currently, S&P rates the local currency at at BBB minus, the lowest in investment-grade level.
Any downgrade would push up borrowing costs for the Indian government and further erode its finances.
Moody’s, the other major rating agency, has pegged the rating at speculative grade, which is less attractive.
Fitch had earlier this month rated local currency rating at investment-grade level, but with a negative outlook and the chance of downgrades.
This follows downgrades to sovereign debt for the ‘three of the four ‘PIGS’ countries in southern Europe – Spain, Portugal and Greece, who face similar stresses on their public finances.
