S&P moots public-sector reforms

NEW YORK, NOV 13: Public-sector reforms hold the key to India's credit rating, according to the global credit rating agency Standard &amp...

NEW YORK, NOV 13: Public-sector reforms hold the key to India’s credit rating, according to the global credit rating agency Standard & Poor (S&P). In a special report on India, published in its Creditweek magazine and circulated to global investors, the global rating agency said, "Prospects for an improvement in India’s economic performance and credit standing depend on whether stability can lead to a new political consensus in favour of more significant structural reforms in the public sector."

The report was written by Joydeep Mukherjee, Standard & Poor’s analyst specialising in India. Acknowledging the growing economic prosperity, the report said S&P lowered the nation’s long-term foreign currency credit rating to "BB" from "BB+" because of the "government’s eroding financial strength."

Even though the report complimented the nation’s "insularity of economic policies from political turmoil," which was reflected by the passing of two fiscal budgets after the fall of a government, it made a scathingcomment on the government’s failure to address the public sector finances. "India’s strong political consensus in favour of weak reforms" is limiting the country’s economic prospects," said Mukherjee.

The underlying political maturity behind the turbulence of partisanship permits a stronger commitment to economic reforms provided that India’s leadership pursues them, he said. Total public-sector borrowing, most of which is spent on salaries and interest charges, consumes around 40 per cent of the country’s domestic savings, seriously limiting growth prospects of the country, the report said. On the fiscal trends the report noted that "the poor progress in reforming India’s complicated and inefficient structure of indirect and excise taxes as well as the weak coverage of the growing service sector."