New Delhi: Finance Minister Pranab Mukherjee Monday rejected Fitch downgrade of India's credit outlook to negative saying the rating agency's action was based on "older data" as it ignored recent positive trends.
"While the markets had already anticipated that Fitch would revise the outlook and so there is no surprise in the announcement, it must be pointed out that Fitch has primarily relied on older data, and has ignored the recent positive trends in the Indian economy," Mukherjee said in a statement.
Fitch today lowered India's credit rating outlook to negative from stable, less than three months after rival Standard and Poor's did a similar downgrade. It cited corruption, inadequate reforms, high inflation and slow growth as reasons for the revision.
Mukherjee said that Fitch has not taken note of many of the government's recent initiatives including fertiliser subsidy reform, capping subsidies as a fraction of GDP, new manufacturing and telecom policies.
"It (Fitch) has missed the process of strengthening of public finances in India as is evident by, inter-alia, a gradual reduction of government debt/GDP ratio in the last few years, as compared to an increase in this ratio for most of the major economies in the world," the Finance Minister noted.
According to Mukherjee, the concerns expressed by the rating agency on the economic growth potential, inflationary pressures and weak public finances have already been "taken note of" by the government.
In its report, Fitch said that India faces an "awkward combination" of slow growth and elevated inflation. Further, the country is also facing "structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms", it added.
Mukherjee pointed out that although government welcomes the observations made by Fitch regarding Indian economy's strong fundamentals, "its concerns about the economic growth, inflationary pressures and weak public finances are not placed in the context of the present state of the global economy and are based on older data".
The Finance Minister noted that recent decline in international oil prices and absence of any major adverse results on corporate performance in last quarter of 2011-12 are all factors that would have a positive impact on the government's fiscal position and more generally on country's economic growth.
Among the positives cited by Mukherjee include revision of interest rate cycle by RBI in April 2012, decline in core inflation from 8.7 per cent in May 2011 to less than 5 per cent in May 2012, progress has been made on fuel linkage for coal-based power projects and the quarterly investment growth rate becoming positive in the fourth quarter of 2011-12.
"The Foreign Institutional Investors (FII) have reposed renewed faith in the Indian economy and have already invested a net USD 12.3 billion in the first five months of the current calendar year as compared to USD 8.3 billion in the full calendar year 2011.
"This is the highest net FII inflows in the corresponding period in the last ten years," he said.
Noting that Foreign Direct Investment has witnessed an impressive growth, Mukherjee said gross FDI inflows rose 35 per cent to USD 46.8 billion last financial year compared to USD 34.8 billion in 2010-11 fiscal.
A recent road show in five Gulf countries revealed high degree of interest and enthusiasm among overseas investors in India's medium and long-term economic growth, he said.
"Initiatives taken recently to improve the growth prospects include a seven-pronged strategy to increase exports and the new thrust given to the infrastructure sectors by the Prime Minister...," Mukherjee said.