Mumbai: India needs to contain its widening budget gap and implement changes including stake sales of state-run companies and easier rules for construction firms to keep its investment-grade credit rating, Standard and Poor’s (S&P) said.
The rating may be reviewed after the new government, which assumes office after Parliamentary elections in April and May, unveils its economic policies, R. Ravimohan, S&P’s managing director and regional head for South and South-East Asia, said.
S&P last week lowered its outlook on India’s debt rating to negative from stable, saying the country’s deteriorating fiscal position was “unsustainable” in the medium term. The outlook cut came after the government on 16 February said its deficit for the year will rise to 6%, double its initial estimate. S&P had lifted India to the investment grade BBB-, the lowest investment grade, in January 2007.
The government has announced excise cuts and Rs20,000 crore spending since December as part of two stimulus packages to bolster an economy likely to grow at the weakest pace since 2003 and as Prime Minister Manmohan Singh’s government faces elections. The government last year announced farm loan waivers worth as much as Rs71,700 crore and gave 5 million civil servants a 21% pay rise.
The government could begin with an asset-sale programme from its about $100 billion (Rs5.21 trillion) ownership in state-run companies, give construction firms greater access to bank funds to generate more employment, and help electricity generators get their dues, Ravimohan said.
An asset-sale programme can help in reversing a big slippage in India’s fiscal consolidation and also raise funds that could aid the government give a boost to the economy, he said.