NEW
DELHI, Sept 21 (IslamOnline) - Business and industries leaders of
India have shown a mixed reaction to the American financial rating
agency Standard and Poor’s (S&P) lowering of its rating of
India’ s local currency-denominated debt “ junk”
Secretary
of Federation of Indian Chambers of Commerce and Industry Amit Mitra
said Friday, September 20, that the S&P’s statement about a
possible downgrading on other parameters is "untenable”.
The
Indian stock market staggered for a while after S&P announcement
Thursday, September 19, but bounced back after assurances from the
government on sound fundamentals.
The
rating cited a growing debt burden, unsteady public sector finances
and faltering privatization drive as the reason for downgrading.
Political groups opposed to the privatization drive of the government
saw it as a pressure tactic from the West to goad India to privatize
faster.
S&P,
however, did quote the faltering privatization drive as one of the
reasons for the downgrading. “ Recent political disagreements
threaten to set back India’ s privatization program, which had
enjoyed success in recent months,” it said.
Disinvestment
of two major public sector oil corporations has recently been put on
hold because of severe disagreement within the central council of
ministers. Alluding to that, S&P said, “ The resulting loss in
the government’ s credibility, along with the foregone revenue from
the sale of large public-sector firms weakened investor confidence and
enlarges the government’ s credibility, along with the forgone
revenue from the sale of large public-sector firms weakens investor
confidence and enlarges the government’ s borrowing needs.”
The
rating of India’ s long-term debt denominated in rupee has been
brought down to a BB-plus from a more credible BBB-minus. The
short-term rupee-denominated debt was scaled down to B from A3.
However, the downgrading does not seem to have much effect so far.
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Investor
looking at repurchase prices of UTI,
India
's largest mutual fund
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Although
India’ s premier newspaper, The Times of India, warned
against government’ s indecisiveness and political drift, it said in
its first edit, “ Don’ t junk us,” Saturday, September 21, the
declaration of India’ s long-term rupee debt as junk “ would
normally result in a hike in domestic interest rates. But in a
scenario where banks are sitting on huge stashes of cash and
industrial borrowers are not exactly queuing up, that is something
that can safely be discounted.”
The
Times said the blue chip companies in
any case kept attracting foreign investment, while the others borrowed
locally. “ Institutional investors may pause for a while, but they
will also factor in India’ s current forex reserves of $62 billion,
its steady growth rate, and the fact that it has never defaulted on
debt repayment.”
The
Times said the country “ could attract far more foreign
direct investment (FDI) than it does today.” From the Times
point of view, the FDI scene may not be great, but it was not too bad
either. However, statistics tell a different story.
FDI
in India was a meager $2.14 billion in 1995, which rose to $2.32
billion in 2000, compared to China’ s $35.80 in 1995 that climbed to
$38.30 in 2000. Even much smaller Thailand rose from $2.07 billion to
$3.36 billion.
However,
industry leaders expressed confidence that with its steady economic
growth over the last several years (around 6 percent) and other strong
fundamentals, India should sail through.
The
weaknesses pointed out by S&P are not unknown to Indians. “ The
facts being stated (by S&P) are all fairly known,” said MR
Madhvan, research head at Bank of America.
S&P
hinted at further downgrading if India did not put its house in order.
However, a Reuter report said chairman and managing director of
state-run Oriental Bank of Commerce Bhagwan Das Narang thought the
downgrading was mere “ pressure tactic to hasten disinvestment.”
The
outspoken Indian Express took the central government to task as
“ keepers of the junk yard” in its first edit Saturday, September
21. Not content with that, it ran a major article by editor-in-chief
Shekhar Gupta titled “ Our discredit rating: An A plus.”
Gupta
pointed out “ the sheer lack of discipline in the cabinet, where any
minister holds forth on any economic issue, where the RSS-related
economic organisations block or promote any policy” as sources of
the drift.
Most
commentators agreed that indecisiveness and indiscipline in high
positions of governance could no longer be afforded
