Moody’s Won’t Raise India Rating Unless Debt Reduced

Nov. 10 (Bloomberg) -- India’s sovereign rating won’t be raised unless the government works toward reducing its budget deficit and debt, according to Moody’s Investors Service.

“Unless we see some hope for signs of improvement in government finance, India’s rating won’t be raised,” Moody’s Senior Vice President Tom Byrne said in an interview in Shanghai today. “We don’t see that yet.”

Prime Minister Manmohan Singh’s government is borrowing a record 4.51 trillion rupees ($97 billion) this year to fund stimulus packages and revive growth in Asia’s third-largest economy, forecast by the central bank to expand at the slowest pace in seven years. Higher borrowing is expected to widen the budget deficit to a 16-year high of 6.8 percent of gross domestic product in the 12 months to March 2010, according to the finance ministry.

“India has a lot of domestic-currency debt, a very high debt-to-GDP ratio, and a very high budget deficit year after year,” Bryne said. Moody’s has a Baa3 rating on India’s long- term foreign debt, the lowest investment grade.

A widening deficit made Indian bonds the worst performers this year among 10 Asian local-currency debt markets outside Japan, with a 5.88 percent loss, according to indexes compiled by HSBC Holdings Plc. The benchmark 10-year bond yield has added 2.04 percentage points, the biggest gain in at least a decade, to 7.30 percent, according to Bloomberg data.

Asset Sales

Standard & Poor’s, which has a BBB- long-term credit rating on India, the lowest investment-grade level, cut the outlook on the nation’s debt to negative from stable in February this year on concerns over deteriorating government finances.

Moody’s comments come after Singh’s government last week announced plans to sell stakes in state-run companies, which analysts expect will help reduce the budget deficit.

Prime Minister Singh said Nov. 8 that he hopes the decision would lead to “faster progress” on government sales.

The disinvestment program “is going to add to the amount of money available to the government,” said Ashok Jha, chairman of MCX Stock Exchange, which trades in currency and interest- rates futures. “The first impact of this is that the high fiscal deficit will decline substantially.”

India’s cabinet on Nov. 6 approved a plan requiring all state-run companies to make sure that 10 percent of shares are publicly traded and said proceeds from share sales should be used for spending on social programs such as creating jobs and building roads, ports and utilities.

Ratings company DBRS Inc. last month cut India’s long-term foreign- and local-currency debt rating outlook to negative from stable, citing “discomfort” with the “high” budget deficit.