INDIA’S RATING

STANDARD AND POOR'S WARNS INDIA COULD LOSE INVESTMENT-GRADE RATING

S&P released a report titled 'Will India be the first BRIC fallen angel?'

India Today, June 12, 2012

The stock markets went into a tailspin and the rupee resumed its free fall on Monday, following an ominous Standard & Poor's (S&P) report titled 'Will India be the first BRIC fallen angel?'. The document warned that slowing GDP growth and political roadblocks to economic policymaking could put the country at a risk of losing its investment-grade rating.

"The report is a wake-up call for the government which has not taken any fiscal measures to improve the economy. Even today, the finance minister made a false promise that the economy would turn around. There was no explanation about how and when," K.R. Choksey Share and Securities MD Deven Choksey said.

In a scathing indictment of the way India is run, S&P boldly expressed the view that "the division of roles between a politically powerful Congress president who can take credit for the party's two recent national election victories, and an appointed Prime Minister has weakened the framework for making economic policy".

Continuing the blunt dissection, the report stated: "In fact, the Cabinet is appointed largely by Sonia Gandhi and leaders of the allied parties who choose their own candidates for the Cabinet posts allocated to them. Hence, the Prime Minister often appears to have limited ability to influence his cabinet colleagues and proceed with the liberalisation policies he favours."

The 'BBB-' long-term sovereign credit rating for India is currently one notch above the speculative grade. A cut in ratings would push up yields on the benchmark 10-year bond. Public sector entities, including state-run banks, would be hit squarely between their eyes since their finances are closely tied to government finances. It could also drive down foreign investment into India as global investors will look to more stable destinations for better returns.

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