New Delhi: Global rating agency Standard & Poor's (S&P's) recent move to cut India's long term credit outlook to 'negative' is likely to have some 'perceptional impact' on investors, Finance Minister Pranab Mukherjee said, adding that the government has noted the concerns underlined by the agency.
"In their report, S&P raised concerns about issues such as the level of fiscal deficit and debt burden, increase in the current account deficit and the slowdown in the economic growth. However, the revision in outlook may have some perceptional impact... Government has taken note of these concerns," Mukherjee said in a written reply to Parliament recently.
Earlier April, S&P cut its long term credit outlook on India to 'negative' from 'stable' due to the country's deteriorating economic growth, widening current account deficit and slow pace of fiscal reforms, but affirmed its long term rating at 'BBB-' albeit with a hint that the rating may be downgraded if the situation worsens.
Mukherjee further said that the government is taking steps towards fiscal consolidation, which includes curbing expenditure on central subsidies to under 2% of gross domestic product (GDP) in the current financial year 2012-13 and bringing it further down to 1.75% of GDP by 2015.
"Government is also making a determined attempt to reduce the budgeted fiscal deficit to 5.1% of GDP in 2012-13 from 5.9% of GDP in 2011-12. In addition, efforts are being made towards enactment of Direct Taxes Code (DTC) and drafting of model legislation for Goods and Services Tax (GST)," he added.
Last week, media reports, citing an unidentified finance ministry official, had said that India has made a strong pitch for higher ratings from another global credit rating agency Fitch Ratings, citing healthy foreign direct investment inflows and government's commitment to reign-in fiscal deficit after S&P cut India's outlook.
India's current account deficit may have widened to 3.6% of the GDP in the fiscal year 2011-12 from 2.6% a year ago, according to the Prime Minister's Economic Advisory Council, a level worse than the 3% seen during the 1991 balance of payments crisis.
Moreover, the rupee continues to be volatile amid deepening political turmoil in the Euro zone and deteriorating domestic economy, even as the Reserve Bank of India undertook a string of measures recently to stem the fall of the Indian currency.
Recently, Mukherjee also told lawmakers that the government will introduce some 'unpopular' austerity measures and take tough decisions on reducing its subsidy bill to reign in India's fiscal problems, even as the government has so far failed to check the rising burden of subsidies by keeping diesel and fertilizer prices under control.
India's GDP growth likely slowed to 6.9% in the last fiscal year against 8.4% expansion recorded in the previous fiscal 2010-11, according to government estimates, while the economy is seen accelerating to 7.6% in the current fiscal year on the back of likely rise in industrial production.