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Economic Reforms To Drive India Sovereign Rating, Says K V Kamath

The Union Cabinet on Tuesday approved a bill to set up a Development Finance Institution (DFI) to raise long-term capital to fund infrastructure development, as the government has envisaged an investment of Rs 111 lakh crore by 2025.

Photo Credit : Reuters

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Veteran banker K V Kamath on Wednesday expressed optimism that India's sovereign rating would go up on the back of efforts being taken by the government to push economic reforms.

Participating in a virtual event organised by India International Centre (IIC), Kamath, former chief of Shanghai-based New Development Bank, further said that he does not think rating agencies can hold India's rating 'where it is'.

'With all the efforts (economic reforms) the government of India is making, I think that sovereign rating itself would go up. Because, I don't think rating agencies can hold India's rating where it is,' Kamath said.

The Economic Survey had expressed concern over lower sovereign rating assigned by agencies like Fitch, S&P and Moody's to India despite its strong economic fundamentals.

Global ratings agencies have the lowest investment-grade rating on India, which is just above the junk status.

In June 2020, Fitch Ratings revised India's outlook to 'negative' from 'stable' and affirmed the rating at 'BBB-', stating that the coronavirus pandemic has significantly weakened the country's growth prospects for the year.

Moody's Investors Service downgraded India's sovereign rating to 'Baa3' from 'Baa2', saying there will be challenges in the implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.

S&P Global Ratings retained the 'BBB-' rating for India for the 13th year in a row in June last year.

Commenting on the Union Cabinet's decision to approve a bill to set up a Development Finance Institution (DFI) to raise long-term capital to fund infrastructure development, Kamath said it is a right time to set up this institution.

The Union Cabinet on Tuesday approved a bill to set up a Development Finance Institution (DFI) to raise long-term capital to fund infrastructure development, as the government has envisaged an investment of Rs 111 lakh crore by 2025.

The proposed legislation will give effect to the Budget announcement made by Finance Minister Nirmala Sitharaman on February 1. The government has proposed Rs 20,000 crore to capitalise the institution.

'Today, we have a situation where banks are funding long term requirement of the industry...Infrastructure needs long term funds that is where these institutions (DFI) comes in picture,' he noted.

Kamath also noted that the government backing the institution (DFI) is also a big push. 'It is a support of your shareholder that give you one notch upgrade...The DFI should have freedom to design products,' he said. 

(PTI)