India's credit rating may be raised from junk

India's credit rating may be raised from junk if finance minister Pranab Mukherjee provides a comprehensive plan to roll back fiscal stimulus and cut the budget deficit this week, Moody’s Investors Service said.

“If we think the exit path is well articulated and well executed, the local currency rating could be upgraded,” Aninda Mitra, a Singapore-based sovereign analyst at Moody’s, said in a telephone interview on February 19. India’s long-term local currency debt is placed at Ba2 by Moody’s, two levels below the investment grade and at par with Armenia and Turkey.

Mr Mukherjee has an opportunity to narrow the budget shortfall as accelerating economic growth boosts tax revenue and a stronger political mandate after last year’s elections paves the way to resume asset sales. Rating changes have less impact on India than other countries like Greece, which borrow more from abroad. India’s foreign borrowings make up only about 4% of government debt compared with 83% for Greece, according to Citigroup.

“India has lived with a budget deficit for so long, and with a high growth rate you can run a deficit,” said Andrew Michael Spence, a Nobel prize-winning economist and professor emeritus at Stanford University’s Graduate School of Business. “You don’t want the credit rating to go too low. It’s more signalling rather than anything else.”

India’s budget deficit may narrow to 5.5% of gross domestic product in the financial year starting April 1 from 6.8% of GDP in the previous year, Chakravarthy Rangarajan, Prime Minister Manmohan Singh’s top economic adviser, said on February 19. Mr Mukherjee is scheduled to unveil the Budget in Parliament in New Delhi on February 26 at 11 am.

Stocks snapped a two-day decline while the yield on India’s benchmark 10-year note fell the most in more than four weeks after Moody’s comment. The rupee gained the most since February 15. India’s Sensitive Index rose 1.1% to 16,369 on the Bombay Stock Exchange and the rupee appreciated 0.3% to 46.14 per dollar. Bond yields fell four basis points to 7.84% as of 1:24 p.m. in Mumbai.

Source: http://economictimes.indiatimes.com/news/economy/indicators/Moodys-may-raise-India-rating/articleshow/5605152.cms