India a fallen angel? Nah, says Pranab

The government on Monday questioned S&P's fresh report on India, saying there had been no development to suggest the country was more prone to shocks now than in April, when the rating agency had lowered the outlook on India's rating from positive to negative.

In a report released on Monday, S&P said among Brazil, Russia, India and China, India was the one most likely to lose its investment-grade rating, if growth issues were not addressed.

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"Between April and now, there were no significant events to indicate the economy's vulnerability to shocks has increased, though growth numbers for the fourth quarter 2011-12 were below expectations," Finance Minister Pranab Mukherjee said in a statement in New Delhi.

He said S&P's recent report suggested the main factor that would determine India's investment grade credit rating was the "government's reaction to potentially slower growth and greater vulnerability to economic shocks."

Speaking at an event, the finance minister disagreed with those that feared in 2012-13, economic growth would slip below 6.5 per cent.

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He said he expected a turnaround in the economy and pegged growth in the gross domestic product this financial year at seven per cent.

Given the strains on the Centre's resources, he ruled out fiscal stimulus to revive growth prospects.

"The second round of global uncertainty and the slowdown has followed the first rather quickly, with practically no headroom for running a pro-active fiscal policy," he said.

"We are taking all necessary steps to ensure we come back to the targeted growth path. "Of course, it will take some time," Mukherjee said.

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He said there were some positives for the Indian economy.

"The interest rate cycle has been reversed, mining sector growth has turned around and progress has been made on fuel linkage for coal-based power projects," he said.

He pointed to the pick-up in investment growth.

Gross fixed capital formation rose 3.6 per cent in the fourth quarter of 2011-12, against contraction of 0.32 per cent in the third.

He added a normal Southwest monsoon had been predicted for 2012-13, and there was a rapid decline in international oil prices in recent weeks.

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"Further, there are no major adverse results for corporate performances in the last quarter of 2011-12.

All these should help in the recovery of domestic growth momentum," he said.

Mukherjee said foreign institutional investors had reposed faith in the Indian economy, pumping in $12 billion in the first five months this year (up to June 9).

He added this was the highest net FII inflow in the corresponding periods of the last five years.