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Sinha allays fear of rupee fall after rating downgrade

Union Finance Minister Yashwant Sinha on Thursday allayed fears of a fall in rupee value after global rating agencies downgraded India's currency and said the government would continue the reforms process at its own pace.

"With $43-billion reserves, you don't have to bother about the rupee. Keep the idea of a possible fall in rupee value out of your mind," Sinha told reporters when asked about the impact of the downgrading of local currency.

He said the country's external sector was strong and the rating by Standard & Poor's and Moody's would not affect the fundamentals.

"We have very strong external sector and anything what is being said about the external situation, is not based on facts at all," he said.

Sinha, in fact, questioned on the rating exercise citing the high rating that East Asian nations enjoyed just before the currency meltdown.

The international rating agencies projected a 'negative' outlook as against the previous "stable" outlook on grounds of unchecked fiscal deficit, rising domestic indebtedness and slower implementation of second-generation reforms.

"We will proceed with the reforms process with our own pace. We are not hostage to anyone so far as the reforms are concerned," Sinha said, adding the rating criteria were an "absolutely wrong" assessment of India's reform process.

The minister did not conceal his concern over growing fiscal deficit and said: "They (rating agencies) are not adding to our wisdom. I am aware of the fiscal situation more than anyone else. The country is aware of it."

"I have been the biggest advocate of fiscal discipline myself. The Eleventh Finance Commission has created a structure through which we are now working with state governments so that fiscal discipline pervades in their budgets also," Sinha said.

He said it was not right to say that government was unaware of the problem and was not doing anything to bring down the aggregate deficit.

The government has initiated measures including introduction of the Fiscal Responsibility Bill and other legislations to check government spending and reduce deficits, he said.

The measures would take some time to be implemented as it involved parliamentary procedures, which the government cannot avoid, Sinha added.

Speaking on similar lines, RBI Governor Bimal Jalan said there was no internal debt crisis brewing up since the economy was stable, foreign exchange reserves were on rise and interest rates were low compared to the previous year.

Standard & Poor's on Tuesday downgraded India's long-term local currency sovereign credit rating to 'BBB minus' from 'BBB' on account of unchecked fiscal deficit and rising domestic indebtedness, while revising the rating outlook to 'negative' from 'stable'.

Moody's also revised the rating outlook of the local currency to 'stable' from 'positive' while assigning 'negative' outlook on the domestic debt situation from the earlier 'positive' outlook.

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