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S&P hails reforms, but says no change in rating outlook

Source: PTI
September 17, 2012 16:37 IST
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Indian flagGlobal ratings agency Standard & Poor's, which had in June threatened to downgrade India's sovereign ratings to junk status, today welcomed the rash of big-ticket reform measures by the government over the weekend, saying the steps would serve as a medium-to-long term positive for the macroeconomic conditions.

"If the measures proposed by the government are implemented, we would expect a medium-to-long-term positive impact on the macro-economy," S&P Director for sovereign ratings Takahira Ogawa said in a note.

The agency, however, maintained that its views of April, when it downgraded the country's outlook to negative, and June, when it used strong words for actions by policy- makers to avoid a downgrade to junk status, remain unchanged.

In a string of bold initiatives, the government, accused of a 'policy paralysis', first announced a steep 12 per cent, or Rs 5 per litre,

increase in the regulated diesel prices on Thursday and a cap on subsided cooking gas usage.

The next day, it followed this up with a liberalisation of foreign holding caps in the aviation, multi-brand retail, non-news broadcast media and power exchanges.

It also announced a plan to divest its stake in five companies.

In the note, Ogawa raised questions over the efficacy of these measures.

"We believe that the government's recent announcement on foreign direct investments is an encouraging development, but at this stage it is still uncertain whether these measures can be implemented or nor."

He specifically pointed out to the liberty given to a particular state whether it wishes to adopt the changes in the multi-brand retail FDI or not.

"Hence, the actual impact from this measure might be less than expected," he said on FDI in multi-brand retail.

Similarly, the proposed divestment of PSUs, he said, "depends on the actual implementation of the plan."

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