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FM rebuffs S&P’s recent report; exudes confidence of economic turnaround

12 Jun 2012 Evaluate

Exuding confidence that growth prospects of Asia’s third largest Indian economy will turnaround in coming months, Union Finance Minister Pranab Mukherjee opined that the government is completely aware of the current economic situation and went on to rebuff global rating agency S&P’s recent report, warning that India could be first BRIC nation with a non investment-grade sovereign credit rating.

In April 2012, Standard & Poor's had reviewed India’s sovereign debt rating and though they had reaffirmed the nation’s long-term rating but slashed the rating outlook to negative from stable citing weak GDP expansion prospects and the risk that its external liquidity and fiscal flexibility may wear down. The Finance Minister quelled concerns over S&P’s recent report stating that it was not based on a fresh rating action.

He emphasized that barring the disappointing fourth quarter GDP growth numbers; there have been no significant events between April 2012 and now, to indicate that the economy’s vulnerability to shocks has increased. Highlighting that S&P’s recent report suggests that the main factor that would determine India’s investment grade credit rating would be government’s reaction to potentially slower growth and greater vulnerability to economic shocks, he opined that government is already taking efforts to revive the economic growth prospects.

Pranab Mukherjee underscored several positives for the Indian economy including RBI’s recent reversal of interest rate cycle by announcing a cut of 50 basis points at its last review of monetary policy; mining sector growth has turned around, progress has been made on fuel linkage for coal based power projects; there is a turnaround in the quarterly investment growth rate, which had been negative in the third quarter of 2011-12; a normal south west monsoon has been predicted for 2012-13 and there has been a decline in international oil prices in recent weeks.

He further elucidated that Foreign Institutional Investors (FII) are reposing faith in the Indian economy and had already poured in net $12 billion in the first five months of the current calendar year. Similarly, the fiscal year 2011-12 has witnessed gross FDI flows of $46.8 billion, as against $34.8 billion in the fiscal year 2010-11. The Finance Minister remained certain that all these factors should help in the recovery of domestic growth momentum.

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