Wednesday, February 25, 2009

Cost of funding stimulus package worries Moody's

The S&P had lowered its rating outlook on India to negative from stable citing worsening fiscal situation. Add to this the enormous pressure seen on the fiscal balance post the excise cuts announcement yesterday. Sherman Chan, Economist, Moody's Economy.com said that India’s fiscal position is the biggest concern to the Indian economy and is hurting investor sentiment as well as affecting the fundamentals of the Indian economy. She added that there were concerns about how the Indian government can manage to raise all the funds, to implement all the fiscal measures.

Chan expects the funding cost to rise further in the coming months and the rupee to experience a little pressure. So, she concluded the government needs to improve the fiscal position in order to improve their overall economic outlook.”

Here is a verbatim transcript of the exclusive interview with Sherman Chan on CNBC-TV18. Also watch the accompanying video.

Q: The measures that you heard from the Indian government yesterday, do they only add to your concerns that you have already had on the fiscal deficit picture?

A: The fiscal deficit picture in India is quite concerning, given the large percentage figure of GDP and on the sectors they have decided to cut taxes- means that there will be even more pressure on the fiscal budget. There are concerns and questions about how the Indian government can manage to raise all the funds, to implement all the fiscal measures and right now they are announcing further expenditure. So, I think this is quite problematic from investor’s perspective and on this is why we are seeing some unfavourable response to this.

Q: We heard from S&P yesterday that they were reviewing India’s rating, is that something that you are going to do as well. Just on the other point you made about the fiscal deficit probably being much higher than the official estimate, are you working with any numbers right now that you think it might get to because of these duty cuts announced?

A: I am afraid, I cannot comment on the rating side of things because I am not a rating analyst, I am an economist. So, my analysis is based on what the macro economic picture looks like to me. One of the things the market watches right now is that the fiscal position is the biggest concern to the Indian economy and it is in a way hurting investor sentiment and also affecting the fundamentals of the Indian economy as well. The funding cost is likely to rise further in the coming months and also the rupee is experiencing a little pressure. So, the government needs to improve the fiscal position in order to improve their overall economic outlook.

source:http://www.moneycontrol.com/india/news/economy/costfunding-stimulus-package-worries-moodys/386765