Reform steps fail to impress ratings agencies

The reform measures announced by the government may boost investor sentiment, but global ratings agencies are not too impressed. Both Moody's and Standard & Poor's said they are too small and carry a strong risk of being rolled back under opposition pressure or not be fully implemented.
 
Meanwhile Standard Chartered Bank has cut India's economic growth forecast for the current financial year to 5.4 per cent from 6.2 per cent, citing slowing consumer spending and a slack in pickup in investment activity in the fiscal first half.

"While these (reform) measures will have a positive medium-term impact and will change the perception of policy paralysis in India, they may not have an immediate effect on growth," the bank said, adding that the government needs to maintain the reform momentum to put growth back on an upward trajectory.
 
The government announced last week that foreign direct investment in retail business would be permitted, though under certain curbs. It also raised the price of diesel after a long time by Rs5 a litre, and capped the sale of subsidised liquefied petroleum gas used mainly for cooking. It also said it would divest some of its stake in public sector undertakings.

Moody's said the government's decisions will have minimal effect on India's credit profile.

It said the announcements will boost investor sentiment, which has sagged in recent months. But it added in a weekly credit outlook report, "The effect of the announced reforms on the government's credit profile is minimal because they are either too small to have material sovereign credit benefits or carry implementation or rollback risks that outweigh any credit positive benefits."

S&P also pointed out the political opposition from several states over allowing foreign direct investment by multi-brand retailers in their regions which would constrain the benefits of liberalisation in the sector.

Moody's has a Baa3 rating with a stable outlook on India, while S&P has a BBB-minus rating with a negative outlook.

While government seeks to raise Rs15,000 crore from selling stake in some state-owned companies, the government's poor record of divesting stakes in companies suggests a high execution risk, Moody's said.