BackNo chance of sovereign rating downgrade: Nirmala Sitharaman
Sitharaman said India concurred with the global consensus that fiscal stimulus is key to economic revival
PremiumThere is no possibility of any sovereign ratings downgrade for India despite widening fiscal deficit on higher government spending to support the economic recovery, finance minister Nirmala Sitharaman said on Wednesday .
During a debate on Finance Bill, 2021, in Rajya Sabha (RS), Sitharaman said the consensus among global experts was that fiscal stimulus is key to get the economy back on track, and India has concurred. Fitch has also upgraded India’s growth projection, she added.
Subsequently, the RS passed the Finance Bill by a voice vote later in the day.
“India enjoys an investment grade rating and we are not foreseeing any change or any chance of any downgrade due to us incurring higher deficits. I have announced quite a big borrowing and spending."
“Many economists and rating agencies across the world are of the opinion that governments need to spend to put the economies back (on track). Globally that is the advice that everybody is receiving and we are also following it. It should not hurt our rating," she said.
On 22 March, in its Global Economic Outlook Fitch revised India’s gross domestic product (GDP) growth estimate to 12.8% for FY22, on the back of a stronger carryover effect, a looser fiscal stance and better virus containment. On 14 January, the rating agency had said India’s GDP was likely to grow by 11% in 2021-22.
However, last month, Fitch Ratings had hinted that the counter-cyclical policy of fiscal support to nascent economic recovery in FY22 budget may lead to rise in public debt which may be viewed negatively from sovereign ratings perspective.
All three major rating agencies—Standard & Poor’s, Fitch Ratings and Moody’s Investors Service—assigned the lowest investment grade to India, a notch above the junk status. Sovereign rating is crucial, considering that when a credit rating agency downgrades India’s sovereign debt, all debt instruments in the country may have to be downgraded accordingly due to the sovereign ceiling doctrine. If commercial banks are downgraded to sub-investment grade they will find it costly to issue internationally recognized letters of credit for Indian exporters and importers, isolating the country from international capital markets. Downgrade of corporate debt to sub-investment grade will also impact companies issuing debt in international capital markets.
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