India pushes for higher Fitch ratings; cites good FDI inflows, fiscal commitment.

NEW DELHI: India made a strong case for higher ratings from global agency Fitch, citing good foreign direct investment inflow and commitment to keep fiscal deficit under control.

The finance ministry is keen to avoid a repeat of the embarrassing rating cut by the Standard & Poor's that lowered India's rating outlook to 'negative' from 'stable' because of poor fiscal health and deteriorating economic indicators.

"We told them to look at the FDI inflows and market returns that India has to offer. We told them that India is committed to cap subsidy at 2%," said a finance ministry official after a meeting with Fitch representatives on Thursday. The US-based rating agency is likely to come out with its assessment within a month.

Riding on some big-ticket investments, India received highest annual FDI at nearly $50 billion in 2011-12 despite poor investment sentiment, but other capital flows remained muted.

The current account deficit is expected to have widened to 4% of GDP in the last financial year.

The policy inaction and the continuing slide of the Indian rupee amidst global volatility loomed large over the discussion between the government and the rating agency officials.

The rupee fell to 54.47 to a dollar on Wednesday, breaching the record low of 54.30 in December.

Finance Minister Pranab Mukherjee on Wednesday had indicated that fresh austerity measures may be imposed soon to address India's fiscal problems and to spur growth.

"I am going to issue some sort of austerity measures...whether people like it or not...to convey a signal that we are responding to the situation," he had said.

Finance ministry officials also indicated to the rating agency that even under a global financial stress the Indian economy is doing well. "We have argued that with FDI inflow at its highest and FIIs pumping money into Indian markets, the country is an able candidate for a ratings upgrade," the finance ministry official said. "When you have this kind of inflow, a high current account deficit is normal," he said.

India's growth is expected to be in the range of 7% in the current year, almost same as last year, but well short of 8.4% achieved in the previous two years.

Fitch had last rated India in 2010, giving a foreign and local currency rating at 'BBB-/stable'.

Last year, the agency had affirmed the 'BBB-' rating for India, indicating moderate degree of safety regarding timely servicing of financial obligations.

India has a 'BBB-' rating on its sovereign debt rating from Fitch and S&P, similar to the 'Baa3' rating from Moody's. All are just one notch above non-investment grade or 'junk' status.

Source : economictimes.indiatimes.com