The Hindu : S&P not objective: FICCI

Online edition of India's National Newspaper
Sunday, Sep 22, 2002

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S&P not objective: FICCI

By Our Special Correspondent

NEW DELHI SEPT. 21. The Federation of Indian Chambers of Commerce and Industry (FICCI) and several apex industry bodies have disapproved of the Standard & Poor's downgrading of the Indian local currency sovereign rating and asserted that it would not affect the country's international standing.

The FICCI president, R. S. Lodha, said the downgrading was only a cosmetic move and "it will not affect our international standing, since no foreigner operates in local currency".

According to him, sovereign rating is supposed to reflect the Sovereign Government's ability and willingness to service its debt fully and on time. "Data for India reveals that our interest payment burden as a percentage of GDP, has gone down from 4.76 in 2000-01 to 4.66 in 2001-02.

"It is notable that our total outstanding liabilities of the Central Government has remained below 60 per cent of GDP over several years. So, there is no negative trigger for S&P to downgrade local currency sovereign rating to below the investment grade.

"Therefore, this downgrade seems to be sending a political message rather than giving an objective credit rating. It would also be interesting to see what kind of messages S&P was sending before the South-East Asian melt down with regard to countries that were involved. A credit rating agency should not be in the business of sending political messages," Mr. Lodha said.

He further added that, "obviously credit rating agencies are not expected to send broad political messages. If we take the broad account of India's current standing, we discover that we currently have the highest-ever foreign exchange reserves, the lowest-ever inflation rate and the highest-ever foodgrain stocks.''

Most importantly, a recent FICCI survey found that inventories in corporate India were down indicating the need to start investing in plant and machinery, profit expectations were up and taxes paid by the corporate India to the Government had risen significantly.

Therefore, if S&P were to take a broad view of the political economy of India they would have no reason to downgrade the country keeping a broader perspective at this point of time.

The FICCI feels that the macro economic data on debt liabilities of the Central Government or total interest payment burden on debt and the rising revenue collections this year do not in any manner warrant such a downgrade.

Arun Kapur, president, PHDCCI, said that the downgrading to junk status had been done without fully comprehending the strength of the economy.

Mr. Kapur said the rating had no meaning since it had not taken into consideration the fundamentals of Indian economy which includes a strong agricultural base, extensive industrial set-up and a marked dominance of the service sector, specially the IT sector.

Secondly, inflation was under control despite initial failure of monsoon.

"India has huge food grain stocks which adds to its strength. Recent rainfall in the northern states is likely to improve the winter crop which will further strengthen the economy," he said adding that the move should not influence the stock market considering the fact that the country has reasonably sufficient foreign exchange reserves.

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