India sovereign ratings remain 'stable': Moody's

MUMBAI: Moody's Investors Service still considers India's sovereign ratings at 'stable', saying the growth slowdown was not irreversible, while the current 'Baa3' rating reflected the country's medium-term outlook.

The ratings agency said the recent spate of reform measures announced by the Indian government would not change the outlook, because the fiscal deficit would likely still exceed the country's target, said Atsi Sheth, vice-president, Sovereign Risk Group at Moody's in a teleconference from New York.

Fiscal deficit was also raised as a point of concern by PIMCO's EM Portfolio Manager, Masha Gordon. Gordon said that Even though the recent rally in rate sensitive stocks signals that the government's action 'is for real', concerns remain on whether the policy initiatives will be able to address the mountain of fiscal deficit. Gordon emphasised the need for coordinated state and central government action. This she said would ensure a higher growth trajectory.

A Reuters poll has also predicted that the government will likely borrow an additional Rs 50,000 crore ($9.34 billion) for the year ending in March and miss its fiscal deficit target.

The country's fiscal deficit is expected to rise to 5.8 per cent of gross domestic product (GDP), higher than the government's target of 5.1 per cent of GDP given in March, according to the poll of 24 economists taken over the past week.

Estimates for the government's additional borrowing for the second half of the fiscal year which started in April ranged between Rs 15,000 crore to Rs 75,000 crore.

The government is set to unveil its borrowing plans for October-March this week, although it may delay announcing needing extra borrowing to avoid upsetting markets, and stick to its current target for now, analysts said.

But eventually, the government would have to announce extra borrowing, according to analysts tracking the trajectory of government spending and revenues.

Although major reforms this month, including a hike in subsidised diesel prices, have been cheered by markets, investors remain worried about fiscal discipline.

The government had earlier set its borrowing target for October-March at Rs 2 trillion, as part of its plans to raise Rs 5.7 trillion for the full fiscal year.

However, the deficit has already hit 51.5 per cent of the full year target, making it likely the government will have to resort to more borrowing.