India Ratings retains stable outlook on Indian economy

Devendra Pant, Chief Economist, India Ratings, in an interview with CNBC TV18 says they will retain their stable outlook on the Indian economy.

On June 12, the rating company had revised the country's sovereign rating outlook to 'stable' from 'negative' on the back of measures taken by the government to contain the budget deficit. The report had said, it expects the government to broadly meet its 2013/14 fiscal deficit target of 4.8 percent of the gross domestic product.
He says, as of now, things are consistent or broadly in line with the ratings levels, but if there is a wide movement on any side, be it on the positive side or on the negative side, the sovereign group will have a relook at it.
According to him, since India is mainly a net commodity importer, there is some advantage because of weak rupee to the exporter, but exporters are not able to take full advantage of rupee depreciation, and hence are asking for 10-15 percent discount in prices. Also Read: Negative on India; every bounce will induce sell-off: Citi Below is Devendra Pant’s verbatim interview with CNBC-TV18 Q: Very recently you had revised the outlook on India higher to a stable rating versus your earlier rating of negative, how are you assessing these recent developments in the Indian macro situation with the rupee breaching that 60.5/USD mark etc? Is there perhaps a risk to your stable rating now on India?
A: These views are taken by our sovereignty. I will explain the rationale, the view was since mid-September, the kind of policy action we had seen on the ground with the biggest of them being the diesel price deregulation and with that the view was that the outlook will change to stable from the negative. As we all know India is mainly a net commodity importer, there is some advantage because of weak rupee to the exporter, but what we had seen is the exporters are not able to take full advantage of rupee depreciation, thereby are asking for 10-15 percent discount in prices. So net-net there will be impact of rupee depreciation on inflation and other parameters.
As of now, if you look at what has happened in the last couple of years, it does broadly follow a trend of deterioration, be it the ratio of forex reserves to the debt or the short-term to total debt ratio. It is following a particular trend, but if it deviates too much from the trend that has been shown in the last four-five years, then maybe the sovereign group will reassess the situation. Q: I just wanted to know whether because of the rise in external debt, there would be any worries on the rating front, external debt has risen by USD 55 billion in FY13 to 390, so now the reserve cover drops to less than two-thirds, 66 percent of forex reserves only, will that be a worry?
A: If I look at the Reserve Bank of India (RBI) release, it still has 75 percent cover to the debt, which is higher than what we had in end March 2003. So it is from end March 2003 that things started improving and more capital came in. If you look at the Table 5 on key external debt indicators, in 2013, it still gives the number of 74.9. So, as of now, things are consistent or broadly in line with the ratings levels, but yes if there is a wide movement on any side, be it on the positive side or on the negative side, the sovereign group will have a relook at it.