Why Rangarajan thinks India should not be downgraded

Government has already taken a host of reform measures and there is no case for any downgrade of India's sovereign rating by global agencies, Prime Minister's key economic advisor C Rangarajan said in New Delhi on Friday.

"The rating agencies have been talking about the reforms having been put on the back burner.

“But that is no longer true.

“Many important legislations were passed (recently) . . .

. . .

Therefore, I would think the rating agencies have no case for any downgrading," he said in reply to a query after release of the 'Economic Outlook 2013-14' report.

Among other key legislations, Parliament has passed the Pension Bill, which opens doors for foreign investments.      

Recently, Standards and Poor's had said that there is one third possibility of a rating downgrade of India.

It has maintained negative outlook for India.

. . .

Rangarajan, Chairman of Prime Minister's Economic Advisory Council, said that rating agencies ‘need to recognise’ that though rate of expansion of GDP in the country has slowed, ‘the growth rate between 5 to 5.5 per cent is still a very respectable’ in the present global scenario.

The Economic Outlook has projected a growth rate of 5.3 per cent this fiscal, higher than the 5 per cent estimated for 2012-13 financial year.

In its report released last year also, S&P had said India faces one-in-three chance of rating downgrade in the next two years in case the government fails to push reforms in view of the political gridlock and ensuing general election in 2014.

. . .

Another leading agency Fitch in its recent report said there was no immediate trigger for India's rating downgrade, but warned that unchecked fiscal deficit and high inflation could lead to a negative rating action.

The government has repeatedly maintained that fiscal deficit will be restricted to 4.8 per cent of the GDP in 2013-14 and current account deficit would be brought below $70 billion from $88.2 billion recorded last year.