Apr 29, 2012, 11.32 AM IST | Source: CNBC-TV18

R Gopalan expects FY13 to see highest FDI inflows

Economic affairs secretary R Gopalan said that he had expected S&P to retain its stable credit rating outlook for India.

R Gopalan, Eco Affairs Secy, GoI

Economic affairs secretary R Gopalan said that he had expected S&P to retain its stable credit rating outlook for India.

On Wednesday, the ratings agency cut its outlook on India's BBB- rating to negative from stable and warned it had a one-in-three chance of losing investment-grade status, sending shockwaves through the ministry. Its decision could raise costs for Indian borrowers and undermine foreign investor confidence in Asia's third-largest economy.

At the meeting two weeks ago with S&P credit analyst Takahira Ogawa, Indian officials had argued that tax returns were rising and debt levels were on the decline compared to gross domestic product.

But sceptics say India is politically unable to take major steps to rein in ballooning subsidies, now more than 2% of GDP. Private economists also say the government will struggle to rein in its current account and fiscal deficits and revive GDP growth while world energy prices are high, and with a period of election spending looming.

Speaking exclusively to CNBC-TV18, Gopalan said that the government is determined to contain the fiscal deficit below 5.1% level. He said the government needs to act very fast to curb the subsidy levels. "We need to take the diesel deregulation forward," he reiterated on the channel.

However, he was unable to give a timeframe on the oil reform prices.

With the government staring at a slowing economy, triggered by a lack of reforms, the Cabinet on Thursday cleared the Banking Laws Amendment Bill, 2011 , which could bring some cheer to investors, but needs to be cleared by parliament.

Foreign institutional investors fretting over the General Anti-Avoidance Rule ( GAAR ) will have to wait till the second week of May to get a clear idea of what lies in store for them.

According to Gopalan , GAAR has to be investor friendly and transparent, but not arbitrary. "GAAR will vest onus of proof on tax department and not the taxpayer," he emphasized.  

He expects FY13 to see the highest foreign direct investments into the country.

Below is an edited transcript of his interview with Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: The S&P officials met you before coming to this change of outlook. Are you surprised by this decision?

A: I would rather say that we had indicated very clearly as to how we stand in relation to a number of other countries, , basic strength of the economy and the forward direction which we are planning to go. With all this, there was a view amongst all of us that we had made a very clear case for our country. So in that sense, having done that kind of work and with all my colleagues who had put in tremendous amount of work to convince S&P, we felt that it could have been better.

Let me also tell to you what factors we mentioned to them. The higher gross domestic product (GDP) growth which which during 2003-2011 was 8.2% while most other peers were between 2% and 5%; the growth volatility India’s was 1.6% in the same period while other peers were 2-6%; India’s government external debt to GDP was 4.9% while the ‘BBB’ median was 34%; India’s lower external debt to GDP was about 13.1% wile the ‘BBB’ median was 48%.

We also mentioned foreign exchange reserves, lower external debt service ratio, financial market development, higher resilience in government finances, better capacity for innovation and business sophistication, better quality of India’s public institutions a degree of labour freedom, better quality of education in general for math and science and better attractiveness as an FDI destination.

So we had put out number of factors which showed us to be much better than our peers in the category in which we are. So what we feel is that it was not fair.

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READ MORE ON  R Gopalan, S&P, Takahira Ogawa, GDP

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