Dismissing fears of a rating downgrade, Indian Finance Minister P Chidambaram today said the government will take a host of reform initiatives in the next two years to spur growth momentum.
"I don't think there is a serious threat of a downgrade but we take the talk of a downgrade seriously. We will engage with rating agency and convince them that India does not deserve a downgrade," the Minister said at a press conference on the sidelines of the IMF-World Bank annual meetings here.
Chidambaram said this while replying to a question on the possibility of downgrade of India's credit rating to junk grade by global agency Standard and Poor's in 24 months if more reforms measures were not implemented.
"They (S&P) said there is one-in-three chance over 24 months. I think 24 months is a long time. You will see lot of reforms and lot of change, and lot of strengthening of the Indian economy", he said, adding in terms of growth and potential for growth, India was way above most countries of the world.
S&P in its report yesterday said that there was one-in- three likelihood of rating downgrade for India within 24 months if the economic growth prospects dim, its external position deteriorates, its potential climate worsens,or fiscal reforms slow.
Replying to questions on impact of easy money policy being followed by the developed world, he said it would not only bring more money into emerging nations but also fuel commodity prices.
"There are pluses and minuses. The immediate concern is that if so much liquidity is injected into the system, it might lead to elevated prices, especially in commodities. It might lead to increased speculation in commodities, crude oil, wheat, cotton and metals," Chidambaram said.
As regards the quota reforms at the International Monetary Fund (IMF), the Minister expressed hope that it would be completed by January 2013.
Once the quota reforms are carried out, India's share at IMF is set to rise to 2.75 per cent from 2.44 per cent, making it the eighth largest shareholder in the multilateral agency from its present 11th position.
"We might not meet the timeline ... I am confident that we will be able to get (IMF quota) reform done...What is important is we must get the reform done by January 2013 so that it becomes the basis of the 15th general review of quota to be completed by not later than January 2014", Chidambaram said.
In April, S&P had changed the rating outlook of India from stable to negative, reflecting the possibility of a downgrade. India's present rating is BBB-(Negative), the lowest investment grade rating, and a downgrade would result in India's rating slipping to junk status, raising the cost of overseas borrowings by domestic corporates.
India's economic growth rate during 2011-12 slipped to a nine year low of 6.5 per cent. As per the estimate of the rating agency, the growth in the current fiscal could fall to 6 per cent.
Developing countries, including India, continue to face the fallout of the problem due to European debt turmoil, especially as exports are getting impacted. Also the easy money policies in Europe is resulting in increased capital flows into emerging markets.
"Europe has to get its act together ... What happens in the Eurozone does impact the rest of the world," Chidambaram said.
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