Capital Economics Emerging Market Economist Shilan Shah says India's ratings may be upgraded when there are signs of fiscal consolidation in the next fiscal year.

SHOWS: LONDON, ENGLAND, UK (FEBRUARY 13, 2015) (REUTERS - ACCESS ALL)

1. CAPITAL ECONOMICS, EMERGING MARKETS ECONOMIST, SHILAN SHAH, SAYING:

JOURNALIST ASKING SHILAN SHAH: 'So do you see a ratings upgrade coming this year for India?'

SHAH: 'Well I think this year might be a bit too early. For the fiscal year which is almost ending it looks like the finance ministry might well miss its targets or if it does actually meet its targets it is going to be an extremely close run thing. And so I think the ratings agencies might be waiting for signs of fiscal consolidation in the next fiscal year before any upgrades. And then also within that how spending gets redirected, if there is greater spending on capital expenditure projects. That might not be something that shows up in the fiscal accounts until later on in the next fiscal year and so my sense is that ratings agencies will hold off for now. But in any case the bigger picture is that these rating agencies' upgrades or whatever movements they make, downgrades are generally based on backward looking developments and so the bond markets are generally well ahead of the ratings agencies themselves in pricing in more progress towards fiscal consolidation. And so it is more of a symbolic move rather than anything else.'

JOURNALIST: 'Now the U.S. Fed is expected to hike rates in the second half of this fiscal year. Should we see that happening, how do you see that impacting the flows to EMs like India for instance?'

SHAH: 'Well I think you know if we do see the Fed move, I mean firstly it is priced in, my sense is that part of this is already priced in to the markets. So again the moves won't be as dramatic as they were a couple of years ago. Having said that though there is obviously scope for volatility and disruptive inflows or outflows into and out of emerging markets. However, India doesn't really stand out any more as being one of the more vulnerable to an outflow of capital. As I mentioned the current account deficit has been reined in. Countries such as South Africa and Turkey perhaps to a slightly lesser extent Indonesia are still running much larger current account deficits now than India is. They would be the ones that we would be most concerned about in terms of an outflow of capital. India's position externally is much more secure than the likes of South Africa and Turkey and so we think that we might see some outflows but it is not going to be anything too destabilizing.'