Ratings agency S&P under re over India warning
NEW DELHI — India's ruling party, of cials and a top business group yesterday criticised US ratings agency Standard & Poor's for threatening to downgrade the country's credit rating into "junk" status.
Standard & Poor's report, titled "Will India be the rst BRIC Fallen Angel?", warned on Monday that India could be the rst of the BRIC emerging economies to lose its investment-grade rating unless it revives growth and embraces reform.
"There may be some hidden criteria (which S&P follows), but they didn't explain it to us," R. Gopalan, India's economic affairs secretary, told reporters.
He highlighted how the rm gave Spain a better rating than India despite Madrid seeking emergency nancial aid for its banks and struggling to raise money from nancial markets.
In April, the agency changed India's credit outlook to negative from stable, maintaining India's rating at "BBB-" but warning it faced at least a one-in-three chance of a downgrade if its public nances worsened.
"BBB-" is just one notch above "junk", which carries an increased risk of default and would see India having to pay higher interest rates on its public borrowing.
India's Associated Chambers of Commerce and Industry trade lobby group rubbished the rm's report.
"It looks as if the researchers have compiled together newspaper clippings and put out a paper, which is quite damaging for an economy which is among the top ve in terms of purchasing power parity," president Rajkumar Dhoot said. Manish Tiwari, spokesman for the ruling Congress party, also rejected the rm's verdict.
"This is its personal views," he said. "As far as the fundamentals of India's economy is concerned, its foundations are stable."
The credibility of global ratings agencies such as Standard & Poor's and Moody's was severely damaged by the 2008 nancial crisis after they failed to warn of the danger of toxic mortgage-backed securities.
S&P also maintained a favourable rating on US bank Lehman Brothers until shortly before its collapse due to losses on mortgage-backed securities which caused billions of dollars of losses when US housing market values fell.
India’s Sensex stock index rose 1.17 per cent to 16,862.80 points yesterday on growing hopes for the rate cut.
Lower interest rates are likely to result in higher in ation, already at 7.0 per cent on an annual basis, many analysts believe.
India suffers from poor infrastructure and other structural constraints, but the government’s ability to stimulate the economy is limited because of a gaping scal de cit and mounting pressure to rein in spending and subsidies. — AFP