S&P raises India's outlook; ratings left unchanged
Standard & Poor's Ratings Services said that it revised the outlook on the Republic of India to 'stable' from 'negative'. At the same time, it affirmed the 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on India. "The revision in outlook reflects our view that India's fiscal position could now begin to recover and that its economy will remain on a strong growth path. The Union Budget targets a general government (including central and state governments) deficit of 8.3% in the fiscal year ending March 2011, from 9.8% in the previous fiscal year.
The Government intends to follow the medium-term fiscal consolidation plan outlined by the 13th Finance Commission. The commission recommended that government deficit be reduced to 5.4% of GDP and the ratio of government debt to GDP be lowered to 68% of GDP by the fiscal year ending 2015. The decision to change the fertilizer policy to implement a nutrient-based pricing policy and to raise urea prices by 10% from April is a step forward for the reduction of subsidies, S&P said in a statement. The Budget also announced an average increase in the prices of domestic petroleum and diesel of 6% and 7.8%, respectively.
"We expect India's GDP growth to be 8% in fiscal year ending March 2011, which is higher than many other countries' and exceeds our previous expectation," said S&P's credit analyst Takahira Ogawa. In addition, S&P views India's external position as resilient. "We expect the country's ratio of gross external financing need to current account receipts plus international reserves to remain stable at 77% in fiscal 2010," it said.
However, the ratings continue to be constrained by the high government debt burden, high fiscal deficit, and India's weak fiscal profile, according to S&P. The consolidated debt of India's central and state governments is estimated at 80% of GDP in the current fiscal year, while interest payments are likely to consume about 27% of general government revenue, it added. High inflation rate could also derail the stable macroeconomic and interest rate environments," said Ogawa.
India's sovereign ratings could be raised, if the Government continues to reduce the deficits materially, S&P said. Conversely, if the Government continues its loose fiscal policy or there are policy setbacks that lower India's medium-term growth prospects, there could be a downward pressure on the ratings, it added.
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3G auction...mad rush among incumbent players
Telecoms majors like Bharti Airtel, Vodafone Essar and RCOM submitted applications for the long overdue third-generation (3G) mobile spectrum in an April auction. These companies submitted bids for all of India's 22 telecoms zones. Abu Dhabi-based Etisalat, which has a telecoms joint venture in India, also applied for the 3G spectrum bid, while reports said that Tata Teleservices, India's fifth-ranked mobile firm and 26% owned by NTT DoCoMo, submitted its interest to bid on Thursday. Reports also said that Videocon has also put in a bid for 3G spectrum, while Uninor (a JV between Telenor and Unitech) decided not to joint the mad rush as did a spate of big global names.
Tata Communications, Tikona Wireless and London-based Augere submitted applications for the forthcoming auction of spectrum for wireless broadband access (BWA). Qualcomm announced that it has filed an application to bid in the upcoming BWA auction in the 2.3 GHz band. Bharti, Vodafone and RCOM also expressed interest in BWA spectrum. The bidding for BWA spectrum is expected to be aggressive as only two blocks of spectrum are available across the 22 circles. Spectrum winners will not automatically get a unified licence or ISP licence on winning the bid. They will have to procure it by paying the necessary fees. BWA spectrum would attract a charge of 1% of annualised gross revenues from BWA services.
The 3G auction starts from April 9, and the BWA auction will kick off two days after that, the Government said last month. March 19 was the last date for submitting interest to participate in the auctions. Bidding for 3G would start from a government-fixed base price of Rs35bn (US$770mn) for all-India radio waves, but analysts expect companies to spend between US$1bn to US$1.5bn due to the huge demand for scarce spectrum and cut-throat competition. For all-India BWA spectrum, the base price is Rs17.5bn. In the Union Budget announced last month, the Centre has penciled in revenue projection of Rs350bn (US$7.7bn) from the twin auctions.
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