NEW DELHI: The Japan Board Research Institute, a premier international credit rating agency, has retained India’s sovereign rating for long-term foreign currency denominated bonds at BBB, the lowest of the investment grade.
‘The rating is a measure of the creditworthiness of a country and determines the cost at which it can raise funds in foreign markets. The lower the rating, the higher the cost of borrowing.
Giving reasons for not upgrading India’s rating despite improvements several fronts, the institute said it would take more time for the country to resolve structural problems and take to stable development.
‘The institute noted the improvement in the government’s ability to “keep external debt under control.” But it said “the outstanding debt of the Central government is still at a high level, and no great progress has been made in cutting the fiscal deficit, which is placing pressure on private sector activity.” The bureaucratic structure and the public sector, meanwhile, had become Bloated, while various vested interests remained entrenched. These factors would hinder any attempts at a more radical! Structural adjustment, in areas such as the privatization and improvement in the efficiency of public sector corporations of the reform of laws such as labor related legislation, which would be needed to introduce market principles.
Referring to the reduced fiscal deficit target of 5.5.% in the 1995-96 budget, the institute said that in view of the general elections due in 1996, “Even the government is admitting that it now appears unlikely that this target will be achieved,” The budget for 199596 demonstrates the determination of the government to continue to advance along, the existing path of economic reform, ‘as shown in areas such as reductions in customs and excise duties. On the other hand, however, the failure to cut agricultural subsidies suggests that the polices of the ruling Congress Party are reflecting a string of recent defeats in local elections and the prospects of a general election due in 1906. It is politically unavoidable that the Congress Party should maintain its concern for the poor and socially deprived, as the party derives powerful electoral support from these group: ‘The institute said that there is a fair chance of a change of administration if parties such as the BJP, which have made great inroads in a series of local elections, extend their activities on a national level.
Posing the question whether the present economic reform policies ‘would be continued in the event of a change in administration, the institute said: “I is clear that the BJP, whose support is derived from the middle class, even though it is a Hindu fundamentalist party, is following a free market economic policy. In view of the fact that the economic policies set ‘out by both the BJP and the other major opposition parties at the previous general election in 1991 did not differ greatly from those of the Congress Party, it is unlikely that the continuity of financial policy would be sacrificed as a result of the coming to power of a new administration.”
Article extracted from this publication >> August 4, 1995
