By Rafael Nam
MUMBAI, Feb 4 (Reuters) - India needs to commit to its
recent reform measures and meet its fiscal deficit targets,
Fitch Ratings said on Monday, putting further pressure on a
government keen to retain investment grade ratings.
Despite praising recent policy steps and Finance Minister P.
Chidambaram's assurances on deficits, Fitch said the country
needed to do more, including unveiling a "a credible"
medium-term fiscal plan.
Fitch's warning comes after Standard & Poor's analyst Kim
Eng Tan last week told Reuters the prospect that India would
lose its investment-grade rating had receded somewhat as a
result of economic reforms undertaken by the government.
Both Fitch and S&P had jolted markets last year by cutting
the outlook on India's "BBB-minus" rating to "negative,"
threatening to cut the country to below investment grade, or the
dreaded junk rating.
"As we have previously said, India's patchy performance on
policy implementation and the approach of a general election in
2014 could impede fiscal consolidation, suggesting political and
implementation risk remain significant," Fitch said in a
The government is gearing up to unveil this month its
federal budget for the fiscal year starting in April, which
analysts see as a key test of commitment to shoring up finances.
Some investor fears that India would unveil a spending-heavy
budget ahead of the election have eased somewhat following
These have included moves to allow diesel prices to rise and
increases in rail fares, both politically unpopular moves.
India is also cutting spending, including on welfare,
defence and road projects, government sources told Reuters last
week, while discussing the raising of taxes.
Chidambaram has restated, during meetings with foreign
investors last week, a pledge to meet a fiscal deficit target of
5.3 percent of gross domestic product for the current fiscal
year and 4.8 percent for the next fiscal year.
"I don't think the finance ministry is resting easy. But
this note, which has a somewhat cautious tone, is possibly
another factor that they will remain concerned about," Jyotinder
Kaur, economist at HDFC Bank in New Delhi, said of the Fitch
"All the remarks from different rating agencies will weigh
on the finance ministry's mind."
Fitch said the upcoming budget would be "an important gauge"
of the commitment to fiscal consolidation, though not the only
"A credible medium-term fiscal consolidation plan remains
key," Fitch said. "We also need to observe the impact of reform
and more broadly see how India's macroeconomic outlook develops
(Additional reporting by Shamik Paul; Editing by Ron Popeski)