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Moody's discounts talk of recovery, to continue with low sovereign rating for India

Moody's continues to remain concerned over India's fiscal problems and is likely to keep the nation's sovereign rating for 1999 at the lowered level of November 1998, president of the global rating agency John Rutherfurd Junior said here today.

''Our concerns remain the same as were last year,'' Rutherfurd said at a press conference called to announce its equity participation in ICRA Limited, the domestic rating agency.

Moody's Investor Service, had lowered India's country ceilings for foreign currency notes and deposits to Ba2 / Ba3 last year, reflecting the deteriorating public finances and external trade balances.

Despite the signs of recovery in the Indian economy in the current financial year, the Moody's does not seem to be impressed.

In its latest banking system outlook, the global agency has made its mind quite clear about India. ''Moody's outlook for India's country ceilings for foreign currency debt and bank deposits remains stable, after having been lowered by two notches to Ba2 in June 1998. Moody's remained concerned about India's continued fiscal problems, which severely constrain the financial capacity to overcome infrastructure shortages, provide for the education and health of the population, and upgrade the country's living standards...''

The Moody's assessment about the Indian economy was endorsed by ICRA chairman D N Ghosh saying ''We are in serious fiscal trouble.'' However, Ghosh said these were his personal comments and not of ICRA.

Ghosh who insisted that he was giving his personal views was quite forthcoming in pooh-poohing recovery signs shown by certain segments of the economy. He said that until the fiscal deficit which was seven to eight per cent of the gross domestic product (taking along with the states' finances) could be brought down and interest rates slashed, the economy would not recover.

''Look at the performance of the Steel Authority of India Limited. SAIL symbolises what is happening in 125 public sector companies.''.

Taking a pan-India view, the Moody's latest banking outlook said that in spite of the unstable political environment, economic reforms are progressing slowly in the public sector. ''Private industry is undergoing aggressive streamlining in the face of international competition, and is far more accepting of foreign investment and managerial expertise than was previously the case.''

But on the other hand, Moody's remains concerned over the government finances.

Another area of concern for the Moody's is India's ''weak political structure'' which it said would not dramatically change in the near future. It was because of this weak structure that the pace of the economic reforms remained rather slow.

Referring to the Indian capital market, Moody's president said that it had come a long way in the last ten years and would continue to develop. However, issues like reference benchmarking for the securities need to be addressed to. ''There is need for liquidity in all ranges of securities,'' Rutherfurd said.

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