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04-27-2012, 09:22 AM #1
India Inc warns S&P ratings cut a wake-up call
India Inc has said S&P's lowering of India's rating outlook to negative is a "wake-up call" and asked the government give a thrust to reforms, especially on FDI and tax fronts.
"Government (should) take measures to push for reforms especially in the areas of FDI, GST and DTC," Confederation of Indian Industry (CII ) said in a statement.
Also, further opening up of sectors like aviation and insurance to FDI would help in improving foreign capital inflows and also improve investors' sentiment, it added.
S&P has lowered India's rating outlook from stable (BBB+) to negative (BBB-). The agency has warned of a downgrade if there is no improvement in the fiscal situation and political climate.
Another industry body Assocham said the government should keep its political compulsions away and demonstrate that the reforms process is well on track.
"Clarity must emerge soon on policy frameworks and key legislations like the DTC and GST besides norms for FDI in key sectors like multi-brand retail and pensions," it said.
Assocham also said that fiscal consolidation is "must" to reverse economic indicators.
"This will include removing subsidies for fuel, fertilisers and social schemes," it added.
Research firm Edelweiss said the lowering of outlook is a warning of increasing vulnerabilities and it could impact rupee and may raise external borrowing cost for some of the corporates.
The company said that the S&P's action could exert pressure on the government to act on fiscal front like raising diesel prices.
Chief economist with Bank of Baroda Rupa Rege-Nisture said the lowering of outlook "is a wake up call, but not very alarming. Government should focus on fiscal consolidation programme and bring down the subsidy bill."
Reacting to the S&P action, Finance Minister Pranab Mukherjee on Wednesday said that it is a "timely warning", but there is no need to panic as the government is committed to economic reforms.