UPA Reforms Fail to Impress Rating Agencies

Fitch ratings said that the government has raised the amount of foreign direct investment permitted in a range of industries and, and resolving its long-running disagreement regarding multi-brand retail FDI, it has demonstrated some commitment to growth-enhancing reforms despite recent political deadlock. It added, “Broader concerns regarding the weak and inconsistent regulatory framework remain.” It also said, “Some plans, such as asset sales, appear insufficient to reach the government’s target. The government approved the sale of around 10% of four companies to raise Rs 15000 crore. This will leave the government the clear majority owner of all these companies and only raises half of the budgeted target for the next fiscal year of Rs 30,000 crore.”

Government’s decisions like lifting diesel prices, sale of part-stake in public sector companies and liberalization of foreign direct investment in the retail sector would have minimal effect on the country’s credit profile, according to Moody. The reason which they gave is that they are either too small to have material sovereign credit benefits or carry roll-back risks that outweigh any credit-positive benefits.

 “We believe that the government’s recent announcement on foreign direct investments is an encouraging development, but at this stage it is still uncertain whether these measures can be implemented or not.” Similarly, on the proposed disinvestment of PSUs, he said, “It depends on the actual implementation of the plan” said, Takahira Ogawa, S&P Director for sovereign ratings in a note.