Ahhh.. there we go again.. S & P have decided to lower India's rating outlook close to junk status - BBB - , which is the lowest investment grade rating. Last time I heard from S& P was when they stripped the U.S. of its sterling AAA credit rating for the first time and moved it one notch down to AA+. You can check on the earlier blog - http://sandwichandpeanuts.blogspot.in/2011/08/great-fall-of-america.html
I tried to make sense of this. BBB investment grade means a country can meet its financial commitments, but an adverse external change can affect that capacity. All that S&P has done now is to revise long-term rating to negative, rather than stable (From BBB to BBB-) A downgrade is likely if the country's economic growth prospects worsen, its political climate deteriotes, or fiscal reforms slow down. More specifically, there is at least a “one in three” chance of a future downgrading from BBB. Below BBB will take India to the non-investment grade. We are now sharing the platform with countries like Indonesia, Latvia, Morocco, Tunisia, Bulgaria, Croatia.
I have some questions
Why does S&P think India has a chance of getting degraded?
Do credit rating agencies tend to rate developed regions unnecessarily high and developing regions unnecessarily low. Btw, is India still a developing country or a new industrial nation?
I understand that S&P views will turn optimistic if food and fertilizer subsidies are targeted (and reduced), GST is introduced and FDI relaxed for banking, insurance and retail which is unlikely considering that we have coalition politics, policy paralysis, naxalism and corruption. Probably thats what S&P think too.
What does a BBB rating mean to u and me....markets lose steam. ... price rise .... lack of employment opportunities ... what else. We Indians are used to it.. .
Downgrade means India is going to shine....look what happened after America was downgraded ...its economy is picking up well. India succeeded with all those problems above in the past and will continue to succeed and grow in the future, policy paralysis is only an excuse to scare, it was always paralysed but yet it functioned. Problem of plenty...plenty of people. Look at all the companies results they are growing, hiring more, more motorcycles and cars are being sold, agni 5 test fired successfully, pslv launched successfully, normal rains forecasted, interest rates cut, food prices are going up, gold is up, maoists are doing well, corruption is going well, highway accidents are going well, poverty continues...on track, rural is growing, roads are built albeit at a slow pace, land acquisition affected, strikes are on, liquor flowing, pubs guzzling and discs dancing...all is well that is going well...India shining...albeit success breeds pain ....not happiness. Negative outlook is a great leveller!!!
ReplyDeleteerr...Old Monk!!
Delete@ Old monk .. Loved ur feedback!! lateral thinking
DeleteGenerally I have been optimistic and perhaps patriotic; and therefore, overtly positively biased. Now, I think I am a different person....
ReplyDeleteI do not intend to bat for S&P and don't know if they are biassed (spelling intended) or otherwise. Or, whether their relative ranking is on an even keel.
Here is my take: Now that I seem to understand India more, I developed the following opinions:
A. Our biggest deficit is in character, in particular, in taking responsibility and balancing between personal interest and social interest. Unfortunately, the word character is always linked to sexual behaviour and anything else is not take too seriously. I am not refering to that and let us move beyond.....
B. Anybody trying to score good marks on social responsibility is an idiot: since system is controlled and sold to people who don't beyond self interest.
C. It will be long before things change dramatically. Therefore, any type of thing can happen here and everything is based on serendipity.
D. Taking the country seriously is hazardous since that can lead to heart attacks and other serious ailments.
E. Clearly, if things are moving, they are only becuase of supply demand equation, which continues to depend on the Gulf Oil and Software Jobs.
V