UPA Reforms Fail to Impress Rating Agencies

Bangalore: The government’s big bang reforms have swept the market off their feet. But the reforms that were taken to impress the international agencies, fails to do so.

Agencies like Moody, Standard & Poor and Fitch have downgraded the ratings in order to warn the government to take up the reforms immediately. The agencies have also have expressed their reservations about the government’s capacity to execute the measures that required to cut fuel subsidies and increase capital inflows. Government hiked diesel prices in a bid to cut fuel subsidies and cut down the sale of discounted LPG cylinders to 6 per family annually. In order to attract foreign investments, government also opened up retail and aviation sectors.

The reforms taken up were mentioned as anti-poor by the parties in opposition, giving rise to fears that the government may yet again be forced to roll back on these measures. Even though Finance Minister P Chidambaram assured investors that there will be no roll-back of reforms, rating agencies are unconvinced.

The excise duty on petrol has been reduced by 5.3 per litre and diesel price are hiked by 5 per litre. These measures will reduce the under-recoveries by only 20000 crore- 25000 crore as high crude oil prices and a weak rupee will limit the impact of the government’s action, according to Crisil Reseasrch.

It said in a report, “Consequently, the reduction in under recoveries will have a marginally positive impact on oil PSUs and the government. Moreover, the diesel price hike is expected to lead to an increase in freight rates and profitability of transporters is unlikely to be significantly impacted.” The reform to cut fuel subsidies will decrease the government’s fiscal deficit by just 0.1 percent in terms of its GDP, according to Moody’s calculations.