Indian Finance Minister Makes Case for Ratings Upgrade

India's Finance Minister P. Chidambaram in Singapore on a day trip to woo investors, made a case for a credit ratings upgrade for the country, telling CNBC that ratings agencies, which have threatened to downgrade Asia's third-largest economy to junk status, could be forced to change their mind after he presents his annual budget next month.

Chidambaram who returned as India's finance minister in July last year, has taken several steps to boost investor confidence, from allowing foreign equity in several sectors, to cutting subsidies to rein in the fiscal deficit.

These steps have helped boost stocks and stem the beleaguered rupee's fall.

Indian stocks are up 15 percent since July last year and the rupee hit an almost three-month high against the dollar on Tuesday, a day after the government decided to increase the tax on gold imports, which have put pressure on the country's finances.

(Read More: Is India Fighting a Losing Battle Against Gold Bugs?)

"I think it's possible (an outlook upgrade) if I show on February 28 that I have kept the fiscal deficit below 5.3 percent and if my budget estimates show that next year the fiscal deficit will be 4.8 percent … at that time the ratings agencies should consider improving the (negative) outlook and then the rating," Chidambaram said.

India has set a fiscal deficit target of 5.3 percent of gross domestic product for the fiscal year ending on March 31, but many experts think it could overshoot this target. The finance minister added that India was on course to bring the deficit down to 3 percent in the next four years.

According to Chidambaram the ratings agencies have no case to downgrade India's credit rating to junk status from investment grade. "I don't believe any ratings agency will downgrade us. ... I said this on Aug. 6 and six months later say it again that there is no case for a downgrade."

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Chidambaram said there were a lot of "other candidates in the world" whose fiscal position was worse than India's, plus India was still growing at 5.7 percent with only "four or five other countries growing at a faster pace."

"We also have healthy forex reserves at $300 billion and a high savings ratio of 32 percent of GDP … we certainly don't deserve a downgrade," he said.

When asked whether elections scheduled for 2014 could force a "populist budget" next month and lead to a pause in economic reforms, Chidambaram said: "The elections are 14 months away and budgets are not drawn keeping elections in mind. It will be a responsible budget."

Chidambaram, 67, who could be a potential prime ministerial candidate in the 2014 elections, said India would look to grow close to 8 percent from 2014 onwards.

"That is India's potential (8 percent GDP growth). ... If growth is below that it shows we are not doing something," he said.

When asked whether the Reserve Bank of India (RBI), which meets on Jan. 29, will pursue a growth agenda and cut rates, Chidambaram said, "Just as high inflation penalizes the people, lower growth also penalizes people … the ball is in the RBI's court."

The RBI has resisted pressure to cut rates aggressively and has instead focused on fighting inflation which is running above 7 percent.