New Delhi: India on Wednesday made a case for ratings upgrade with Fitch citing a pick up in the economy, fiscal consolidation and stabilisation of the Goods and Services Tax regime.
Before its scheduled annual review of India's sovereign rating, Fitch Director, Sovereign Ratings, Thomas Rookmaaker and other officials met Economic Affairs Secretary Subhash Chandra Garg, Chief Economic Advisor Arvind Subramanian and Principal Economic Advisor Sanjeev Sanyal.
During the discussions, the government is understood to have said that it will follow the fiscal consolidation roadmap and will lower the fiscal deficit to 3 per cent of GDP by 2020-21.
Sources said that the finance ministry told Fitch officials that it is "following the path of fiscal prudence and contained fiscal deficit at 3.5 per cent of GDP this year despite getting 11-month revenue under GST".
They said the ministry officials also informed Fitch that they "can't take chance with fiscal prudence because that affects inflation. Hence we should go by fiscal discipline".
The government will introduce amendments to the FRBM Act in the ongoing Budget Session of Parliament, specifying the consolidation roadmap.
As per the roadmap, the fiscal deficit will be lowered to 3.3 per cent in the next fiscal starting April 1, to 3.1 per cent in 2019-20 and 3 per cent by 2020-21.
The international rating agency also raised queries on GST and the recent fraud at Punjab National Bank.
Sources said the ministry told Fitch that GST has more or less stabilised and after e-way bill and invoice matching starts, there will be a pick up in revenue collection in next 7-8 months.
On the PNB fraud, the ministry has said that investigation is on and action would be taken in the case once the probe is over.
India's largest banking fraud unfolded last month when PNB said it has detected fraudulent transactions to the tune of Rs 12,700 crore, about USD 2 billion, in one of its branches in Mumbai.
With regard to privatisation of public sector banks (PSBs), the ministry said that it was not on "immediate agenda".
The call for privatisation gathered currency after diamond jeweller Nirav Modi allegedly colluded with some officials of PNB to fraudulently obtain guarantees so as to avail of loans from the branches of various Indian banks overseas.
Showcasing strong macro economic fundamentals and uptick in economic activity, the finance ministry official said reforms like GST has led to increased tax payer base.
The ministry officials also told Fitch that the government is selling off loss making PSUs and in current fiscal disinvestment proceeds have touched Rs 1 lakh crore.
In May last year, Fitch kept India's sovereign rating unchanged at 'BBB-', the lowest investment grade, with stable outlook. The rating was assigned to the country 11 years ago.
Fitch had last upgraded the rating from 'BB+' to 'BBB-' with stable outlook on August 1, 2006. Later, it changed the outlook to negative in 2012 and then again to stable in the following year, though it kept the rating unchanged at the lowest investment grade.
The Fitch review for annual sovereign rating follows India's rating upgrade by Moody's after a gap of 14 years, while S&P retaining its rating for the country.
While Moody's had in November 2017 raised India's sovereign rating from the lowest investment grade of 'Baa3' to 'Baa2' -- the first upgrade in almost 14 years, and changed the outlook from stable to positive, S&P refrained from upgrading the rating from 'BBB-' citing high government debt and low income levels.
S&P has maintained 'BBB-' rating on India since 2007.
After the Budget for 2018-19, presented in Parliament on February 1, Fitch Ratings had said that high debt burden of the government constrains India's rating upgrade. India's debt:GDP ratio currently stands at around 69 per cent.