New Delhi, April 26: The Asian Development Bank (ADB) today said India should fast-track reforms and cut its fiscal deficit to support a slowing economy and restore foreign investors' confidence.
The statement comes a day after ratings agency Standard and Poor's lowered the outlook on India's sovereign rating to negative from stable.
Rajat M. Nag, managing director-general of the ADB, said the government must raise fuel prices to lower subsidies, which often don't benefit the targeted people and end up straining its finances.
Finance minister Pranab Mukherjee is visiting Manila next week to attend ADB's 45th annual meeting of the board of governors scheduled between May 2 and May 5.
"Reforms are running into some headwinds," said Nag, adding that the 5.1 per cent (fiscal deficit) aim for 2012-13 is achievable but "we have to make some tough calls, including on fuel subsidy".
Nag also said that India shouldn't "over-react" to the cut in the country's long-term ratings outlook to negative, but added that "it is a timely warning" to restart reforms one step at a time.
"Perhaps there are too many reforms ' land acquisition bill, mining, pension, insurance, retail. The government needs to prioritise."
"India needs foreign direct investment at a much faster pace. We believe it will (pick up) if reforms start to make some progress," said Nag.
He cautioned inflation in India remained high, leaving little room for an easing in monetary policy.
Meanwhile, a day after SandP cut India's outlook to "negative", RBI deputy governor K.C. Chakrabarty today said in Hyderabad that the country's financial system was strong and sometimes these ratings were discounted by markets. He added that the Reserve Bank would intervene in the forex market only if there was high volatility in the currency market, not just because of the ratings.
Icra expects the number of rating downgrades for Indian companies to be much lower this year than in the last few years.
"During the last one or two years, the downgrades have been much more than upgrades. Now we expect it to stabilise. The trend of downgrading would still continue but is not expected to be so frequent or severe," said P.K. Choudhury, vice-chairman and group CEO of Icra.