Moody's still positive on India, keeps rating intact

Moody's has retained its Baa3 positive rating for India, according to Marie Diron, Senior Vice President, Moody's Investors Service. She said Moody's has retained the rating keeping in mind the fiscal challenges like high government debt faced by the country. But it has given a positive outlook given India's healthy GDP growth.Talking about the possible review of the FRBM Act, Diron said that the change of fiscal deficit targets will not have any immediate implications. But she said the government has to ensure that the final outcome is within the specified range and that deficits don't slip further.Below is the verbatim transcript of Marie Diron’s interview with CNBC-TV18's Ekta Batra and Nigel D'Souza.Ekta: We have a committee or a panel which is set up to basically explore the Fiscal Responsibility and Budget Management (FRBM) Act and the implementation of it which basically means that there will be a target with regards to fiscal deficit. It will be a range as opposed to a specific target that we have currently. Do you think that in case that does come about that would change how maybe rating agencies view India and your rating or Moody's rating that you have currently on India?A: The panel will look at different options and one option will be to move from a point target to a range. It is interesting when you look across the world, different countries have very different set ups in terms of setting their fiscal objective. And in some cases in terms of deficit and in some cases in terms of government spending, in some cases it is a point and in some cases it is the target.What matters to our assessment of this sovereign fiscal strength and in particular policy effectiveness is maybe not so much in the exact formulation but the credibility and the effectiveness of the way this is set up. So, in the case of India this fiscal strength is in our assessment one of the credit current challenges with relatively high government debt and still substantial deficits. We expect some fiscal consolidation in line with the commitment that the government has repeated towards that objective. We also expect consideration to be relatively slow.So, a change from a targeted point deficit towards a range would not have any immediate implication on that assessment and what really matters is how this is implemented, how binding that range is, what are the measures that are taken to ensure that the outcomes are within the range and that the deficits do not slip, kind of gradually to maybe the wider end of the range if that is what the council will decide.Nigel: Also could you tell us when exactly is the next review, when you all will be reviewing your rating on India, when exactly does that come about and also give us your view on the Indian rupee because we have been seeing a lot of turbulence in terms of currencies all across the globe?A: Our rating on India's sovereign debt is at BAA3 with a positive outlook and we are monitoring on an ongoing basis and we have decided on this rating that really reflects the fiscal challenges that we just discussed as well as some relative strength for India in terms of economic strength with Gross Domestic Product (GDP) growth at 7.5 percent that is hampered by some factors, by some high corporate leverage and by banks constrain on their ability to lend but that is supported by real income growth and consumption going forward. As well as in that rating is also embedded assessment of India\\'s institutional strength and that is really a mix between checks and balances that and ensure really balance in these institutions as well as maybe some slow implementation of policies. So, we continue to review all these aspects of our rating and the development from the fiscal side are an important part of that, that we continue to assess as well the important developments on the more macroeconomic policy side. What kind of measures are being implemented and effectively really taking place in terms of improving the business environment and all that together really is the basis of our assessment.