Finance Minister P Chidambaram slams S&P for not upgrading outlook

NEW DELHI: Union Finance Minister P Chidambaram on Monday expressed unhappiness with ratings agency Standard & Poor’s (S&P) reiteration of a negative outlook on India, saying the country deserved an outlook upgrade given the improvement in the macroeconomic situation.

Chidambaram also said the government could take more measures to curb gold imports if they did not slow down. He appealed to the people of India to curb their passion for gold in national interest.

“Our case (to S&P) is that we deserve an upgrade both on the outlook and the rating. S&P may not have been convinced about that...,” the minister told reporters on the sidelines of the annual day function of the Competition Commission of India (CCI).

On Friday, S&P reaffirmed its 'negative' outlook on India's BBB- sovereign rating with a one in-three chance of a downgrade over the next 12 months.

A downgrade could take India's sovereign rating to below investment or junk grade, which would make foreign borrowings for Indian companies costlier, depress capital flows and weaken the currency.

"There is nothing to worry. Our macroeconomic position today is much better than what it was in August 2012 (when Chidambaram took over)," the finance minister said.

Chief Economic Advisor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram, who had argued for an upgrade last month in interactions with the ratings agency, had already expressed their displeasure.

On the issue of high current account deficits, Chidambaram added that it was necessary to curb gold imports. Gold and silver imports shot up 138% in April. "At our instance, RBI has now instructed banks that they should not import gold or offer gold except to jewellers for export. Some more steps if necessary would have to be taken," he said.

The spike in gold imports has increased the pressure on the country's trade and current account deficits, and limited the scope for monetary easing by RBI despite a recent slowdown in inflation.

The finance minister also made a case for merging of public sector banks, saying the country needed two or three large size banks to cater to the economy. "...some banks, including some of the 26 public sector banks that we have, may be better off merging," Chidambaram said while taking about sectors that need restructuring.

"The need for two or three world-size banks in an economy that is poised to become one among the five largest in the world is rather obvious," he said.