Within three months of Standard & Poor’s action in April and its follow-up threat last week, global rating agency Fitch, on Monday, scaled down India’s sovereign credit outlook to ‘negative’ from ‘stable’ while citing much the same reasons as S&P — corruption and the absence of or inadequate reforms.
However, unlike in the case of S&P’s strictures when the government appeared to go on the defensive, Finance Minister Pranab Mukherjee junked the downgrade saying that the rating agencies’ observations were based on “old data” and did not reflect the recent developments.
In a statement, pointing out that the revision in rating outlook by Fitch to the lowest investment grade notch was because it had ignored the recent positive economic trends, Mr. Mukherjee said: “While the markets had already anticipated that Fitch would revise the outlook and so there is no surprise in the announcement, it must be pointed out that Fitch has primarily relied on older data, and has ignored the recent positive trends in the Indian economy”. Chief Economic Advisor Kaushik Basu, on the other hand, dubbed Fitch’s action as “herd mentality” and expressed no surprise over the outlook downgrade. “There is a herd mentality among policymakers, herd mentality among corporates. There is also little bit of herding among credit rating agencies. We were pretty much expecting Fitch to do so,” he said. He, however, admitted that even while there was some deep strength in the country, “there is lot to be done. I think that the next six months will be crucial,” he said.
Announcing the lowering of sovereign rating oulook, Fitch Ratings, in a statement, said that India was faced with an “awkward combination” of slow growth and elevated inflation as well as structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms.
Outlook for PSUs
Fitch went on to point out that the revision in outlook reflected the “heightened risks” that India’s medium-to-long-term growth potential would gradually deteriorate if further structural reforms are not hastened, including measures to enhance the effectiveness of the government and create a more positive operational environment for business and private investments. It, however, retained India’s sovereign rating at ‘BBB-’, a notch above the speculative grade.
Alongside, the rating agency also downgraded the credit outlook of seven PSUs — NTPC, SAIL, IOC, PFC, GAIL, REC and NHPC.
Countering the Finance Minister’s comment on the economic data used for the credit rating analysis, Director of Fitch’s Asia Pacific Sovereign Ratings Group Art Woo said that Fitch reviewed India most recently, typically, on a broad range of factors, such as macroeconomic policy, economy and public finances. “Negative, more precisely mean over 12-24 months there is a chance that India’s rating could be downgraded,” he told a TV channel.
The Indian government, Fitch said, had repeatedly delayed tax and subsidy reforms and thus the confluence of weaker economic growth and a large subsidy bill “means India will likely miss its 5.1 per cent of deficit target for 2012-13”. While pegging the fiscal deficit target at around 5.6-5.9 per cent of the GDP, the rating agency also lowered the GDP growth forecast to 6.5 per cent in 2012-13 from its earlier projection of 7.5 per cent.
Mr. Mukherjee, on his part, asserted that Fitch had not taken cognizance of many of the government’s recent initiatives which include fertilizer subsidy reform, capping of subsidies as a fraction of GDP (gross domestic product), the new manufacturing policy and the telecom policy.
The Finance Minister also highlighted the fact that foreign institutional investors (FII) have since reposed renewed faith in the country’s economy and have already brought in a net $12.3 billion in the first five months of 2012 as compared to $8.3 billion invested during the full calendar year of 2011.
Keywords: Fitch, Indian economy
When we examine the parameters of growth and confidence building
measures we fall short in having a stubborn attidude on wanting growth
only in certain areas and only in a certain direction.That is a nation
in action.A nation doesnt bend on such critical matters.We should not
then pay attention to Fitch or S&P for their rating.If we are bothered
then we should study Singapore and Dubai and take steps accordingly.
The Punjabis dont want it that way and the Italians also dont want it
that way because it is in direct conflict with their survival.Thats
the reason Why !
Looks like in India,every day we are having many scams or frauds or
misuse of official power been committed by people in power in cahoots
with big businesses and this is only increasing day by day and not
reducing. The main reason for this is our system of governance and
democrarcy have completed failed. India should have gone for Military
rule immediately after Independence for a period of 10 years and first
set right law and order and taken care of basic needs for all citizens
like food, water, power and jobs , education and only when basic needs
have been met and people have had basic education, strong law and
order, should democracy have been introduced slowly and gradually.
Now, it is too late, & India is now deep corruption and with scant
regard for law and order,only middle class people only following rules
where big businessmen and politicians openly flouting laws and
cheating the public and people and no one not even bothered about the
poor, India & its democracy is doomed.
All government officials (minister, economic advisor downwards) are herding to reject wise criticism of their actions.
It is time government realises that its bureaucratic machine is incapable of delivering any results and that it should withdraw from economic activities to a large extent. In short the prescription is :
a) privatise all public sector companies, undertakings (including Railways)and banks.
b)roll back 6th pay commission for all except defence forces and apply zero budget principles to all (other than defence forces) government departments so as to downsize the government.
c) bring total salary and personnel bill of civilian to reasonable level as compared to GDP
d) roll back all subsidies and end all price controls
e) permit all sectors (including agriculture) to export
Whom will the investors believe, India's Finance Minister and the government's Chief Economic Adviser or well-known International rating agencies? The over-done "shoot the messenger" routine of the Manmohan Singh government is becoming stale.
An attempt is being made to force India to submit itself to FDI or else.
We shall do well to stand on our own, as otherwise european nations will transfer their
poverty to India.
US and Europe are in great problem and India with its huge markets and growth
potential should manage its economy cleverly.
Government should be worried about such negative actions by international credit rating agencies. They have potential to adversely affect capital investments in the country. It is no good blaming activists for highlighting corruption in the country. people outside also see how corrupt our system has become. It is hightime our leaders across the political spectrum took notice of the negative slide they have put their country at.
Credibility of the rating agency
These rating agencies gave high rating to top 8 banks of USA during 2008 which were at the edge of collapse (banks were saved by TARP). So how can we rely of such agencies
UPA government need to take necessary steps to make efficient reforms
against this economic inflation.
It is not the economy alone that is stagnant, but also the RBI in its policy to tackle Rupee depreciation and inflation. In the wake of such a critical financial situation, do we really need the incumbent Finance Minister to wash his hands off and embrace the post of President? Not to mention that our truly democratic machinery dillydallies with the candidature as well.
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