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Limited fiscal improvement impeding India upgrade: Fitch

Fitch Ratings has affirmed India’s rating at Triple B minus with a stable outlook. In an interview to CNBC-TV18, Thomas Rookmaaker, Director, Fitch Ratings, discusses the concerns on the Indian economy.

Fitch Ratings has affirmed India’s rating at Triple B minus with a stable outlook. In an interview to CNBC-TV18, Thomas Rookmaaker, Director, Fitch Ratings, discusses the concerns on the Indian economy.

Below is the transcript of Thomas Rookmaaker’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Latha: Moody’s thought that a positive outlook was merited because the investment climate has definitely improved with several infrastructure tangles getting disentangled and more importantly decision on foreign investment being taken for instance in insurance and several other areas like defence. You are not convinced?

A: We have seen number of significant positive developments in India. This government has a strong drive to implement structural reforms and that should lead to improvement in the business environment, to pick up in investments and to higher real gross domestic product (GDP) growth. At the same time the business environment is relatively weak if you compare it with peers and the business environment has also not changed overnight. For the World Bank ease of doing business indicators, India scores the worst of all the countries that are rated BBB minus currently. So there is still some catching up to do.

Latha: Is it only that ease of doing business that worries you, that prevents you from improving rating?

A: No it not, actually there is another positive development that we see and that is what it seem strong resolve by both the RBI and the government to lower inflation structurally and the new monetary policy framework is testament to that as well as the limited rise that we have seen in minimum support prices but what currently contains rating is the limited improvement in India’s fiscal position. So India’s general government debt is close to 65 percent of GDP which is the highest of all the BBB-rated countries apart from Aruba, which is a small island and the latest Budget also did not contain many measure to change this, for instance the measures to increase government revenues. So all in all we decided to keep the rating at BBB minus with stable outlook.

Latha: No points for improved current account deficit?

A: Yes, points for an improved current account deficit. The gold curb helped a lot and also monetary policy in that respect and on the external side it makes India less vulnerable than many of its peers when it comes to for instance normalisation of that policy going forward. We look at large range of indicators so we look at the macro situation, fiscal situation, the external situation and the structural situation. On the externals, India is doing relatively well but on the fiscal and structural, India is doing less than peers.

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