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Moody's says India not on review for early upgrade

Global ratings agency Moody's Investors Service is unlikely to review India's speculative grade rating in the near future, a Moody's official said on Wednesday.

"The rationale for the relatively low rating relates to the continuing inability of the government to rein in public spending, particularly on subsidies and defence," Kristin Lindow, Moody's India analyst, told Reuters via e-mail.

There has been market speculation that India's ratings may be reviewed for a possible upgrade.

Moody's has a Ba2 rating on India with a positive outlook.

"The rating is not on review for upgrade, and is not likely to be on review in the near future," the Moody's analyst said in response to questions.

Lindow said lower world trade growth this year -- projected by the IMF to be less than half the increase of the past year -- would affect exports.

An industrial slowdown, failure to push privatisation aggressively, feeble foreign direct investments and high real interest rates were also negative factors, Lindow said.

"The chances that monetary and fiscal policy will be able to turn this around quickly are therefore rather slim," she said.

India's GDP growth is expected to be under six per cent in the current year ending March 2002.

The economy is estimated to have grown by six per cent in 2000-01. GDP growth was 6.4 per cent and 6.6 per cent in the two preceding years, a far cry from an annual average of 7.5 per cent for three straight years in the mid-1990s.

Latest industrial figures indicate that sluggish conditions could persist. Production growth slid in April to 2.7 per cent from 6.5 per cent a year earlier.

Besides a large government financing requirement, the central bank's desire to maintain a stable or slowly depreciating rupee has kept real interest rates high, the Moody's official said.

Supporting India's rating are its moderate and manageable external debt service needs, low short-term external debt, and healthy foreign exchange reserves (at $43 billion), Lindow said.

Another positive was the restructuring by private domestic industry in response to increasing international trade and competition, she said.

Since Moody's assigned its positive outlook to India's rating in October 1999, the political situation has deteriorated.

The strength of the Bharatiya Janata Party-led coalition government has been undermined by allies opposing plans for privatisation and reforms, and one ally has withdrawn.

"The political situation has again grown more divisive, making the prospects for implementing broad economic and political reform more elusive," Lindow said.

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