Finance Ministry to make case for S&P ratings upgrade

S&P Global Ratings has further slashed its FY21 GDP growth forecast to 3.5 percent from a previous downgrade of 5.2 percent. (Image: Reuters)

Finance ministry officials will interact with representatives of financial services company  Standard & Poor’s on Thursday to lobby for a rating upgrade. They are expected to highlight the government’s track record in implementing economic reforms and meeting fiscal targets, according to a Business Standard report. 

Another ratings agency, Moody’s, said on Wednesday that higher crude oil prices and interest rates would add to the pressure on the nation’s current and fiscal account deficits. It upgraded India’s long-term sovereign rating in November 2017.

The meeting with S&P is expected to take place in New Delhi’s North Block, the administrative complex that is home to the finance ministry. The government will be looking to impress upon visiting officials that it is committed to meeting the fiscal deficit target of 3.3 percent of GDP.

Global cues such as fuel prices and a looming trade war could impede the country’s attempt at reining in its deficit. Moreover, expenditure could go up as the clock ticks down to the elections of 2019.

The finance ministry has allegedly made the agency privy to documents containing data on expenditure patterns, direct taxes, and collections from the goods and services tax (GST), to drive home its point. While gross tax collection has risen by 14 percent, the net intake was much less since tax revenue amounting to Rs 8,500 crore being refunded in the April-July period.

Moody’s reiterated in its report that oil prices remain a concern and could add to the country’s expenditure. The government will also have to forego a portion of its revenue after a tax cut extended to select consumer goods under the GST. Moreover, high minimum support prices and tax rebates to small businesses could also widen the government’s balance sheet.

However, the Moody’s report estimates that India is on target to reach its target of 7.5 percent GDP growth rate in this financial year the next. It believes that large foreign exchange reserves, monetary policy shifts, and fiscal prudence will limit slippage and buffer against external factors. The government may have to cut back on capital expenditure to contain its deficit within reasonable bounds.

On the other hand, S&P has remained more cautious, placing India in the ‘stable outlook’ category. This is its lowest investment grade rating on India in almost 11 years. Moody’s has been the most optimistic on India, upgrading its rating from Ba1 to Baa3 in November 2017.