The Hindu : S&P rating misleading: Govt.

Online edition of India's National Newspaper
Saturday, Sep 21, 2002

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S&P rating misleading: Govt.

By Our Special Correspondent

NEW DELHI SEPT. 20. The Government today came out with strong economic data to rebut the downgrading of India's local currency sovereign rating below investment grade by the international credit rating agency, Standard and Poor's (S&P's), and said the economy was robust and the ratings would not effect the resource mobilisation programme.

Independent experts criticised the S&P's downgrading, saying the agency was trying to send a political message instead of taking cognisance of the macro-economic parameters of the Indian economy which emit a totally different signal from that of the agency. But there was criticism that the recent bungling by the Government over the oil sector disinvestment issue and the fiasco of the Wednesday Cabinet meeting to raise foreign investment ceilings in select sectors had given a political handle to the critics.

The Finance Ministry put out facts to show that India's debt as percentage of the total gross domestic product was stable during the last three-four years. Moreover, the weighted average cost of market borrowings in the first half of the current year was 7.52 per cent against 9.44 per cent during last year. "Such reduction in the cost of borrowings will have a salutary impact on the interest burden in medium and long term. It is significant that this reduction in the cost of borrowings over the last three years has been achieved along with the elongation in the maturity profile of the loans,'' the Ministry said.

Pointing to other significant parameters, the Ministry said industrial and export growth were up in the April-July period of the current fiscal — with industry growing at 4.7 per cent against 2.7 per cent last year and exports by 15.2 per cent against a negative 0.7 per cent. Even the infrastructure sector had recorded a 6.6 per cent growth against 1.1 per cent. Inflation, on a point-to-point basis, was down to 3.5 per cent against 4.9 per cent in August last year.

According to the Ministry, the drought scare had also receded with the deficiency of rainfall as of September 11 restricted to only 16 meteorological regions, against 25 regions at the end of July this year.

Consequently, growth assumptions made in the budget remain unchanged.

The fiscal position was also better than last year which got reflected in lower recourse to borrowing and other liabilities as component of fiscal receipts. The Ministry expressed optimism about achieving the fiscal targets specified in the budget for the year, which would help in achieving moderation in the growth of internal debt.

The hefty foreign exchange reserves of over $ 62 billion would help the Government go in for full pre-payment of costlier debt.

While most independent experts agree with the fiscal position as put out by the Government, they blame the unnecessary haste in convening the Cabinet meeting on Wednesday to discuss foreign investment limits, without adequate preparation and in the absence of crucial Ministers for giving out the signal that the Government was unable to proceed with reforms.

The open bickering on the oil sector disinvestment issue was another avoidable controversy. The two issues, the experts felt, gave an opportunity to S&P's to downgrade India's rating since the combined fiscal deficit of the Centre and the States — which the agency quoted as a reason for the downgrading — was not a recent phenomenon and had been at that level for some time now.

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