In a wake-up call to the government to put its act together on the macroeconomic front, global rating agency Standard & Poor's (S&P) on Wednesday scaled down India's credit rating outlook from ‘stable' (BBB+) to ‘negative' (BBB-) with a warning of a downgrade if there is no improvement in the fiscal situation and political climate.
Giving reasons for downgrading India's sovereign rating outlook to the lowest investment grade and just one step away from junk bond status, S&P credit analyst Takahira Ogawa said: “The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting.”
Alongside, as a reflection of the “outlook on the sovereign credit rating on India,” the S&P also lowered the rating outlook of the country's 10 top banks which include the State Bank of India (SBI), ICICI Bank and HDFC Bank.
Other banks which would also suffer collateral damage are Axis Bank, Bank of India, IDBI Bank, Indian Overseas Bank, Indian Bank, Syndicate Bank and Union Bank of India.
Keywords: S&P rating, Indian economy
I can sense the seething anger among your readers at the downgrade of
India as a popular destination for investment. That said, we would
rather prefer to be an ostrich in the sand, than to take things
objectively. Why is it that we call rating agencies names, and
denigrate them, when in reality, there may be real underlying reasons
for the downgrade?
What have we done to keep the value of the Indian Rupee intact? What have we done with the paralleled economy made up of black money, that amounts to billions of rupees? What have we done to control inflation, or control population, which has a direct impact on the limited resources? What steps have we taken individually, or as a society, to bring about meaningful changes in the economy?
We can pretend that there is nothing wrong with the economy - or face the truth and do something about it collectively The choice is clear and simple. Which path do we want to choose?
I wonder why we give such importance to external rating agencies like S&P and Moody's. Remember these and others like them are the same agencies that gave AAA rating to the credit default swaps and sub-prime mortgage loans that caused the financial meltdown in 2008.
S&P rated the economies of Greece and Spain as AA right up to the Eurozone financial crises.
All this leads me to conclude that these rating agencies are extremely reactionary and fall flat when it comes to predictive analysis.
I am not saying everything is hunky dory on India's economic front, but rather just making a point as not to take everything that comes out of S&P at face value.
My money still rides on India's economy and definitely not on S&P’s “analysis".
Sir,I have been writing repeatedly that this FM's 2011 budget of 28th march 20011 raising the tax exemption limit while at the same time lowering the Sr citizen age from 65 to 60 years(done on the advice of his IAS secretaries nearing the age of retirement of 60 yrs) has now led to huge revenue deficit this year and inflation resulting in undue burden on the Poor and the rich & black marketeers becoming richer. Can he undo this? Thank Almighty the FM and the Hon PM did not raise the age of retirement from 60 to 62 yrs which was much talked about?! There will be lot of improvement in the country's economy if the retirment age of Govt servants of the central and state govts put back to 58 or even 55 and apply this rule to all PSUs and Banks. Will this UPA do this bold Act now? Our country's economy will improve a lot as a result.
The first thing that the government has to do is to stop giving oil companies
subsidies and free float the price of petrol at the pump. That will stop this bleeding
immediately.
I don't see anything unexpected. In a country where every other day a
new scam is exposed, that too in thousands of crores; 1700000000000
USD is stuffed in Swizz bank and growing exponentially; such a rating
was likely to be expected and is welcomed by me. Hope this breaks the
sleep of we Indians.
New York city has its own sources of revenue generation from museums,
amusement parks and other tourism spots owned by government and it
does not even requires citizens' money (Tax) to run the city. Why
can't we follow such model here in India?
Media plays an important role in efficient implementation of democracy
in the country. Instead of airing saas bahu serials, comedy serials
and other non related stuff for TRP, it should force government to
perform efficiently and honestly. This news should be used by such
news channels to ask bold questions to our government, again and again
until answered.
We, the educated youth have to save our country from these politicians
to solve the situation.
One of the major cause and the impetus behind this fiscal deficit is the governments inability to meet the targeted disinvestment amount. Out of the total planned 40,000 crore disinvestment for the fiscal 2011-2012, the government has managed to raise only 1144 crore.
This same agency gave the USA AAA+ rating just before the US economy went bust and a lot of bailouts had to be handed out. I believe the USA still enjoys AAA level rating! This is hilarious stuff.
Another ploy to open up India's markets to crooked western firms and a tragedy that our ministers have their noses in the sand.
To quote "Standard & Poor’s, the self-righteous credit-rating agency, has a damn lot of nerve. It provoked scary headlines by solemnly threatening to “short” the USA". (and now India!)
"News coverage on S&P’s credit warning typically failed to mention that Standard & Poor’s itself is in utter disrepute. It was an unindicted co-conspirator in the Wall Street deceitfulness that brought the nation to financial ruin. During the bubble of inflated housing prices, S&P and other rating agencies blessed the fraud-based mortgage securities issued by Wall Street banks with AAA ratings—deceiving gullible investors around the world and assuring bloated profits (and executive bonuses) for the greedy bankers. S&P provided cover for the massive scam that led to the crisis that sank the national economy." William Greider
Downgrading India? By the class duffer: we welcome it!
Excellent Photo for the article: "Apt and Symbolic"
Congratulations to the photographer on his/her creativity.... great going, The Hindu!
Does the Post Lehman brother world still take the ratings of these rating agencies seriously? Is it not the high ratings given by these agenies to the CDOs that led the world to the financial crisis in 2008?
There should be a meta agency that gives ratings to these agencies..
Indian economy is suffering from acute power crisis resulting from imports of Petroleum to coal.This power crisis leads to huge subsidy and fiscal deficit. Moreover the government now is not offering favouring atmosphere to the investors (India as well as foreign). This restrict capital inflows in the economy thereby hindering annual growth.So S&P rating can be regarded as an alarm of further downgrade of the economy. Solution lies in the policy reforms in respect of providing favorable tax regime for the investors as well as promoting and inventing alternate source of energy.
End of Fake Indian Growth Story of No1 Economy by 2020, 10% Growth etc created by Realty developers, Economists, Fund Managers and Politicians
It's the alert time for government to understand the need of policy reform after S&P's rating downgrade for India.Every year our fiscal deficit is increasing but no concrete decision from government to revive the economy growth for double digit.Our country is having potential to grow and outcome this difficult situation.
Hope government takes this in right spirit and make some meaningful
steps to reduce subsidies.
As a person of Indian origin and visiting India quite often, I am not surprised at the turn of events. The Indian Government and the Indian Public as well was believing their own hype. The publicity to slogans such as Incredible India and India shining had to be seen to be believed. Getting things done whether repairing footpaths, buiding toilets or enacting reforms has all gone in the "too hard basket" giving the rich and the powerful all the time they need to spend money on lavish parties, grand weddings and different kinds of excess!
The RBI was trying to curb inflation up until now,with the decrease in
interest rates it has shifted its focus back to the growth.Inflation
will be tamed to 5% by march 2012 as per the forecasts. India is in
much better state compared to other countries. As some one already
mentioned these ratings are a joke.Japan has 100% Debt to GDP ratio and
still functions efficiently.Give RBI and Indian finance think-tank some
credit.Indian markets are highly regulated compared to other
economies.A slight downturn is always good-makes you think better
perhaps!!
Bring the black money back to India and fix the economic situation. And foreign investments will follow the automatically the growth.
Open up all economic sectors for FDIs and privatize all the institutions painstakingly built over decades which are now destroyed by the vested interest then everything will look rosy for a while before we have the final melt down. This is what it means when Mr. Mukherjee says he is committed to reforms
Pranab Mukherjee is a genius but it looks like his hands were held tight with shackles. Despite the recent reduction in REPO rate, we still couldn't see significant impact on the GDP. Moreover the reduction in the rating will make borrowing rate even more dearer. Hope this rating won't affect the FDI & FII much otherwise the outlook will be negative for sure.
Pretty sure that the government financial advisory council which comprises great minds Montek Singh Ahuwalia will take corrective action to retain the lost rating.
Hope Government will learn lesson from this. PM Manmohan singh one of the best Economist all over the world, will do something.
This is what happens when a nation does not defend its currency from inflation. Value of INR has been falling steadily. To counter this, the government needs to crack down on FICN, black money circulating within India and also leaving India. But S&P downgrade is just the West showing their power to open India's closed retail markets.
I remain amazed that anyone continues to take S&P, or Moody’s,
seriously after both agencies granted AAA rating to Collateralized
Debt Obligations. You pay them well enough and you'd be AAA status.
Nor are they the most qualified analysts of the market either. When
they downgraded the US they actually erred by a astounding $2
Trillion. Then they erroneously issued a message that they stripped
France of their AAA rating. It is time someone downgraded S&P.
This is nothing but external pressure to open up the market for Multi-
Retail FDI
SOS call for Indian policy makers & executives. Desperate times require desparate measures. Though it is still early to downplay india's growth story however signs are visible. Infrastructure needs a major boost & investment in this sector has to be augmented. Zero tolerance towards project delays & related cost overuns has to be ensured if investment prospects in allied sectors are to be brightened.
It is time for all governments from state to central, to shed off subsidy and end popular programs of giving free. More important an end to corruption.
I feel India is headed for another 1991 style fiscal crisis in near future. "Dear in front of a headlight" UPA govt to blame for its dithering attitude towards economic reform and its inability to manage difficult allies like TMC.
"Biggest joke of the year!!" The time when the finance ministry is set to receive Rs. 700,000 crores from auction of 2G spectrums, that will possibly wipe off the entire budget deficit, S&P downgraded India? India has a debt-to-GDP ratio of 59% where as Britain has a Debt-to GDP ratio of 86%, still S&P has AAA rating for Britain. Does S&P have any credibility left? This is the same firm that had rated "toxic" MBS, CDOs issued by Lehman Brothers as "investment grade" against hefty fees, just to ensure they flew off the shelf. Investors believed in S&P's ratings and bought these securities, only to lose billions of dollars later. it brought down the Lehman Brothers as well. The US Debt-to-GDP ratio is about 90%, and still has a AA rating from S&P. India has its sovereign currency and can create infinite wealth by printing money, the same way the Federal Reserve and the European Central Bank is now printing notes.
The downgrade is really frustrating.MR Thunuguntala is right.our country should take bold decision so as we do not become Greece or Spain.
This news is quite disturbing. Prime Minister, FM, RBI Governor,SEBI & FICCI should examine the situation on day to day basis and adopt stringent measures to improve the situation. National interest shall be the top priority.
Hope this S&P's oulook cut for India breaks down the deep slumber of Dr. Manmohan Singh's goverment which hitherto was too complacent in its functioning, busy bragging and crediting itself for bringing the economic reforms of the 90's.
Aren't these the same brainiacs at work? India now face a risk of a downgrade?Corruption/scams are at all time high complemented with high inflation and poor governance to name some of India's problem.
Dr. Singh Was hailed for the 1991 reforms, similarly he and his government should be held accountable for the state of economy India is in today and not the global financial crisis.
One can still sense the level of arrogance, pride and complacency in the speeches from key government personnel's be it Montek Singh's comments on BPL or FM's reaction to the -ve outlook.
It will be good if this is taken in the right spirit by the government, and they (re)start progress in the prioritized areas (which are well known). Key here is to demonstrate sustained resolve to execute.
The problem is that the Pranab Mukherjee and the tax
beuraucrats seem to think they can operate in a vacuum. They don't
understand, or are willfully buried their heads in the sand. No
investor invests for Tax reasons, they determine their investments
on returns POST TAX. You cannot have ROI without I. Investors have
a choice and will move away. India has to move away from a perverse
tax collection regime(mugging the tax payer) to creating a
ecosystem to allow investment to thrive. Every modern economist
knows that the multiplier effect has a tremendous effect on the
whole economy. The downgrade by SnP is actually a reflection of
ManMohan Singh. As an economist the PM is permitting economic
malaise.
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