Another rating agency slams India Fitch Lowers Outlook To -Ve, Pranab Says ‘Old Data’ Used

New Delhi: The sputtering Indian economy was dealt another blow as global ratings agency Fitch on Monday revised the country's economic rating outlook from stable to negative, citing heightened risks to its medium-tolong term growth potential, lack of economic reforms and weak public finances. 

    The government swung into damage-control mode, with finance minister Pranab Mukherjee saying Fitch had relied on old data, ignoring the recent positive trends of the economy. Chief economic adviser in the finance ministry Kaushik Basu said the Fitch move was not surprising as rating agencies follow a "herd mentality". However, Basu said India had no more than six months to demonstrate its intent to steady the economy. 
    Fitch's move follows a similar action by Standard & Poor's in April when it revised India's rating outlook from stable to negative, citing similar concerns. 
Govt plans to sell stake in 75 PSUs 
    The government has told international investors that it plans to sell its stake in 75 public sector companies, including 15 that are proposed to hit the markets this fiscal. P 17 'SLOWING GROWTH, RISING DEFICIT'FITCH'S CONCERNS 
Heightened risk to mediumto-long term growth potential 
Growth may deteriorate if further reforms are not hastened 
GDP growth in 2012-13 estimated at 6.5%, fiscal deficit at 5.6% to 5.9% 
WHAT IT MEANS 
Indian bonds run the risk of falling to junk status May hurt investor sentiment Overseas borrowing of companies to get costlier 
MARKETS TANK 
Sensex closes down 244 pts Rupee drops to 56.04/$ before recovering somewhat to 55.93, still a 2-week closing low LOSING FAITH Fitch doubts India will meet FY13 deficit target 
New Delhi: Global ratings agency Fitch has followed in thestepsof Standard&Poor's in revising India's rating outlook to negative. Last week, S&P had unveiled a report strongly criticizing the government's inability to move ahead with economic reforms and referred to cracks in the ruling coalition that were holding up progress. 
    Disappointing news about the state of the Indian economy has hit the headlines with regularity as growth has slowed and inflation been stubbornly high, leaving the government on the back foot on its handling of the economy. The actions of Fitch and S&P raise the risk of Indian bonds slipping into the junk category, hurting the country's image as an investment destination. The cost of overseas borrowing for Indian companies could also go up. 
    Fitch said the general elections due in early 2014 could see politically-driven pressure to loosen fiscal policy, which could further weaken India's public finances relative to peers. "The outlook revision reflects heightened risks that India's medium-to long-term growth potential will gradually deteriorate if further structural reforms are not hastened, including measures to enhance the effectiveness of the government and create a more positiveoperationalenvironment for business and private investments," Fitch said in a statement. "The negative outlook also reflects India's limited progress on fiscal consolidation and, in particular, on reducing the central government deficit despite improvement in the financial health of state governments," the agency added. 
    Fitch has, for now, retained India's BBB- rating, which is the lowest investment grade rating. "Against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onuson effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the economy," said Art Woo, director in Fitch's Asia-Pacific Sovereign Ratings group. 
    The agency, however, said India faced an awkward combination of slowing growth and high elevated inflation and also structural challenges surrounding its investment climate. It expects the GDP to rise 6.5% in FY13, down from a previous projection of 7.5%. It says the WPI inflation may rise by an average of 7.5% in FY 2012-13 "which, though lower than the 8.8% rise in FY 2011-12, continues to be higher and stickier than previously expected, diminishing scope for monetary policy flexibility". 
    The agency expressed doubts about the government's ability to meet the fiscal deficit target of 5.1% of gross domestic product set for 2012-13. Finance minister Mukherjee said the ratings agency had not taken note of many recent structural reforms initiatives taken by the government.