Hours after S&P threatened to downgrade India`s credit rating to speculative grade with highly loaded political remarks, Mukherjee said government is fully seized of the current situation and expressed confidence that there will be a turnaround in growth prospects in the coming months.
"This (S&P report) is not based on a fresh rating action. S&P had issued India`s sovereign credit rating on April 25 reaffirming the country`s long term sovereign credit rating at BBB(-), although it revised the outlook from negative to stable," he said in the statement. Between April and now, the Finance Minister said there were no significant events to indicate that the economy`s vulnerability to shocks have increased though growth numbers for the fourth quarter 2011-12 were below expectations.
He said S&P`s recent report suggest that the main factor that would determine investment grade credit rating is the government`s reaction to potentially slower growth and greater vulnerability to economic shocks. BRIC represents grouping of Brazil, Russia, India and China. Mukherjee said that there are several positives for the Indian economy going forward.
According to him, the Reserve Bank has reversed the interest rate cycle by announcing a 50 basis points cut, mining sector growth has turned around and progress has been made on fuel linkage for coal-based power projects. "... there is a turnaround in the quarterly investment growth rate, which had been negative in the third quarter of 2011-12; a normal south west monsoon has been predicted for 2012-13 and there has been a decline in international oil prices in recent weeks," the Finance Minister said.
Mukherjee noted that Foreign Institutional Investors (FIIs) have reposed faith in the Indian economy and poured in net USD 12 billion in the first five months of the current calendar year (up to June 9) as against an FII inflow of USD 8.3 billion in the full calendar year 2011. This is the highest net FII inflows in the last five years for the corresponding period, he said.
Similarly, gross FDI flows stood at USD 46.8 billion in 2011-12 as against USD 34.8 billion in 2010-11. "There are no major adverse results on corporate performance in the last quarter of 2011-12. All these factors should help in the recovery of domestic growth momentum," Mukherjee said in the statement.