Millennium Post

Rajan snubs S&P, ‘public debt not yet a woe for India’

Rajan snubs S&P, ‘public debt not yet a woe for India’
“We are one of the few countries that do not have a huge debt problem as yet,” he said, addressing the students of Guru Nanak College in central Mumbai this morning. He said that many European Union countries indulge in excess borrowing.

Earlier during the day, in a statement issued in the wake of the Budget, global ratings firm S&P said the high government debt is putting the sovereign rating under pressure. “The debt burden and large budgetary subsidies could constrain the speed of improvements in credit metrics. “The government debt burden and subsidy continue to constrain fiscal flexibility,” its credit analyst KimEng Tan said.

Finance Minister Arun Jaitley in the Budget last week raised the fiscal deficit target to 3.9 percent for FY16, against 3.6 percent given earlier in the fiscal consolidation roadmap which had also promised to bring it down to 3 percent by FY17. Jaitley pushed it back by one year and chose to borrow more to invest an additional Rs 70,000 crore into infrastructure this fiscal.

The RBI Governor said in the face of difficulties after the global financial crisis, central banks around the world are printing money and reducing interest rates to very low levels. India is suffering “avalanche” of capital flows because of this on one hand, and is unable to lower interest rates due to high inflation on the other, he said.

“A lot of that money is coming to us. We have got an avalanche of capital inflows. Our problem is: we also have high inflation, we cannot cut interest rates very quickly to the bone in order to tell those countries - don’t come here expecting high interest rates,” the RBI Governor said.

Rajan said high capital inflows have their own problems and warned that if a situation of currency depreciation were to arise, there can be problems for companies who have not hedged. On the global growth, he said the US seems to be coming out of the period of slow growth but China is slipping into a slow growth. “The US looks like it is coming out of its period of slow growth but big areas in the world (like) Europe, Japan and now increasingly China seem to be going back into a period of very slow growth,” Rajan said.

He said the non-performing assets of banks was a problem and the RBI is trying to solve it. The RBI is still trying to understand the new system of computing GDP, but a 7.4 per cent GDP expansion makes India one of the fastest growing large economies in the world, he said.
PTI

PTI

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