India deserves better (S&P rating)

Discussion in 'Economy & Infrastructure' started by ejazr, May 2, 2012.

  1. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    India deserves better - Views - livemint.com

    Yes, India is performing worse than before, but it’s still performing better than most other countries and certainly better than many ranked ahead of it

    Standard and Poor’s (S&P) placed India on a credit watch last week. Credit ratings matter for governments looking to raise money, investors investing and banks and corporations borrowing and lending. And a closer look at India’s rating shows that it should be higher not lower.

    Few would disagree with S&P’s assessment of India’s economic and fiscal situation. But India is miles ahead of countries S&P rates higher. S&P rates India as BBB-, in the same league as Peru, Morocco and Iceland. Spain and Italy, two countries suffering from a debt crisis that the world is watching, are rated higher than India.

    There are five criteria that S&P uses for sovereign ratings: institutional effectiveness and political risks; economic structure and growth prospects; external liquidity and international investment position; fiscal performance and flexibility; and monetary flexibility.

    On all parameters, India scores well. India has higher growth and lower debt as a percentage of gross domestic product (GDP), lower fiscal deficit as a percentage of GDP and higher foreign reserves than almost any country ranked in our BBB- category or the one above it. Our fiscal deficit is getting worse and the finance minister has said it’s his top concern to rein it in. But with the fiscal deficit at 5.1% of GDP, we are still miles ahead of most other countries. Britain and PIGS (Portugal, Ireland, Greece and Spain) have a higher fiscal deficit as a percentage of GDP than India. In fact, according to an Economist chart, India falls in the middle range of European countries, nearly all of which have a higher rating than India.

    India has something that they all lack though—the elixir of growth. India is one of the fastest growing economies in the world. And growth, as Europe, Japan and America will all say, is the best solution to relieving debt.

    The numbers don’t lie, yes India is performing worse than before, but it’s still performing better than most other countries and certainly better than many ranked ahead of it. There is one non-economic number in the S&P calculation and that is political risk, which was cited as another reason for being placed on the watch list.

    India’s democracy is a pillar of stability. If you want to read what’s going wrong with the country, you can peruse more than 20-odd English newspapers. If English isn’t your cup of tea, there are hundreds more in other Indian languages. And if you don’t like to read, then you can turn on the television, where there are double the number of news channels than English entertainment channels.

    Does anyone believe that Peru, Italy, or Iceland are either economically or politically more stable than India? Did anyone at S&P read Michael Lewis’ Vanity Fair story on Iceland credit? We may bemoan the political situation in India, but this is a country where the glass is half full, not half empty. It is not the socialist India of the 1970s or the licence raj India of the 1980s; much needs to be done, but India’s democracy is robust. A BBB- rating makes no sense from a political perspective.

    The real story is how democracy, and India in particular, is being penalized. I talked to the India head of one of the largest global private equity firms and he described how internal rate of return required for an investment in India is higher than in the US. He argued that this doesn’t make sense, and he’s right, it doesn’t.

    Interestingly, Dagong, the Chinese credit agency, gives India a BBB. Dagong rates China at the top of the world with AAA. S&P rates China as AA-. Never mind that Chinese debt at the local and state level remains opaque.

    The problem with dictatorships is that they seem stable until they don’t. They may be decisive but they aren’t stable. Over and over we have seen this. From the collapse of the Berlin Wall to the colour revolutions of eastern Europe to the Arab Spring, few predicted the demise of those dictatorships. Eighteen months ago, most thought Hosni Mubarak would die in office—now it looks like he may pass away in a courtroom or in jail.

    S&P mentioned the political process as a reason for downgrading the US last year. The political process can be very ugly. Fighting has broken out in parliaments across the world from Taiwan to South Korea. Still, despite the potential ugliness of democracy, it is the most beautiful form of government. It allows public discourse and exposes divisions that exist in any society. It then works for a consensus to heal those divisions. If the credit ratings want to pass judgement on political discourse, then they should look at the human rights abuses that make totalitarian regimes inherently unstable.

    Something is terribly wrong in adjudging the sovereign rating of nations. India’s credit rating deserves to be higher. On both political and economic parameters, India rates highly. Yes, there are problems, but we know about them. That makes it easier to assess the risk. That shouldn’t be penalized, it should be rewarded.
     
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  3. utubekhiladi

    utubekhiladi The Preacher Elite Member

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    (S&P rating) are biased and full of :bs:

    west is trying to blackmail GOI by giving low credit ratings.
     
  4. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    Screw these rating agencies.

    I have a better rating system; it is my marawari friend who tells you to sell , before anyone can guess that shyt is about to hit the fan! :rofl:
     
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  5. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    The fact that all Iceland which basically went through a default and halving of its GDP has same credit rating as India which has no chance of doing so and a GDP in the top 10 economis of the world is quite telling
     
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  6. Yusuf

    Yusuf GUARDIAN Administrator

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    Funny enough, all the "white" countries have good ratings when they are in deep shit, but India is well still a white Man's burden it seems. Really wonder if investors actually go through credit ratings of such companies before they decide to invest in a country.
     
  7. pmaitra

    pmaitra Moderator Moderator

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    So what is the conclusion? The economists at Standard and Poor have low standards of education and poor knowledge of the current situation?
     
  8. Yusuf

    Yusuf GUARDIAN Administrator

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    Selective bias?
     
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  9. pmaitra

    pmaitra Moderator Moderator

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    I forgot to add a smiley. :)

    But yeah, of course selective bias. No doubt about that.
     
  10. pmaitra

    pmaitra Moderator Moderator

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    I had asked a question earlier and I got a nice response:

    I will post on his behalf:


     
  11. sob

    sob Moderator Moderator

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    This line for me kills the entire article of any objectivity.

    FM has been caught by economist fudging figures in two successive Budgets. Post budget the actual Subsidy figures and Fiscal Deficit have become very murky and we are trying to blame the rating agencies.
     
  12. Nagraj

    Nagraj Regular Member

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    are u talking about indian FM???
     
  13. panduranghari

    panduranghari Senior Member Senior Member

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    institutional effectiveness and political risks

    India has a very good central bank. They are not like Zimbabwe. And do much better than Bank of England and US federal Reserve. So India is actually better in terms of institutional effectiveness than Britain who has AAA and USA who has AA.
    Political risks- yes we have differences but we are not likely to see a coup in the next 5 years. We are quite stable than most of the world. Yes we have problems but then who does not?

    economic structure and growth prospects

    Economic structure is shit because it reflects as it is in the west.

    external liquidity and international investment position

    Do they wish we buy shitty sovereign debt of US, UK, PIIGS?

    fiscal performance and flexibility;

    OOH YOU WISH TO START GOLDMAN SACHS SUBSIDIARY IN MUMBAI, DO YOU? And permit them to pillage the country?

    monetary flexibility

    Yeah Whatevvveerrrrr!!
     
  14. ejazr

    ejazr Stars and Ambassadors Stars and Ambassadors

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    Another perspective on this matter

    Is S&P's negative outlook justified?

    Mahesh Vyas
    Managing Director & CEO, Centre for Monitoring Indian Economy

    “The assessment loses credibility when it becomes prescriptive and seems to push the envelope for some particular investments. Happily, the markets are smarter and the India growth story is intact”

    Standard & Poor’s (S&P’s) negative outlook is based on an expectation of a deterioration of India’s external position, diminishing growth prospects and its slow progress on fiscal reforms.

    Fiscal 2011-12 was a weak year. Growth declined sharply, inflation was stubbornly high, the current account deficit deteriorated substantially, Parliament demonstrated its inability to pass legislation and its authority over policy-making was momentarily challenged. The rating agency seems to be combining all of this in some kind of a straight-line projection into the near future by declaring the outlook negative.

    Interestingly, S&P’s own forecast does not suggest a deterioration in 2012-13 as there was in 2011-12. In 2011-12, real GDP growth declined a substantial 1.6 percentage points (from 8.4 in 2010-11 to 6.8 per cent). S&P did not term the outlook for 2011-12 negative. Now, when it expects the fall in real GDP to be a marginal 0.2 percentage points (a measure that can easily fall within a margin of error of any forecasting model) it has termed the outlook negative.

    S&P’s growth forecast for 2012-13 at 6.6 per cent is much lower than the forecast by most other agencies. At the Centre for Monitoring Indian Economy, we believe that the economy will rebound in 2012-13 with a 7.6 per cent real GDP growth. The outlook is more positive than negative. Interest rates have declined and are expected to remain low, supply bottlenecks seen in 2011-12 – the availability of coal, gas and iron ore – have eased. New capacities worth a record Rs 4 trillion were commissioned in 2011-12. As a result, the industrial sector is expected to grow at an accelerated 6.7 per cent in 2012-13 compared to 4.1 per cent growth in 2011-12.

    In spite of the slower pace of investment activity in 2011-12, the commissioning of projects reached record levels. We expect investment activities to improve significantly in 2012-13 since supply constraints have waned. Capacities worth Rs 4-5 trillion are expected to be commissioned in 2012-13. The sustained creation of new capacities in recent years has raised employment in the organised sector, which, in turn, has sustained growth in consumption expenditure. Poor official statistics do not reflect this. But topline growth of the corporate sector shows this eloquently. A third consecutive year of normal monsoon strengthens the case for robust consumption expenditure growth. We believe that the combination of healthy investment and consumption growth would fuel real GDP growth in 2012-13.

    Long-term problems afflicting investments remain. These mostly pertain to land acquisition for private projects and environmental concerns. In the interest of long-term and sustainable growth, it would be unwise for any government to rush legislation in these cases without sufficient consensus. The same applies to the Goods and Services Tax and even the Direct Taxes Code and, of course, the Lok Pal Bill. While all these legislations will make India a better country, delays in their implementation does not lead to any slowing of growth. It merely slows the potential acceleration.

    The rating agency has also expressed concern over the fiscal deficit and the current account deficit. Both deteriorated in 2011-12 and are expected to improve marginally in 2011-12. The agency is less worried about the external position.

    The gross fiscal deficit rose to 5.9 per cent of GDP in 2011-12 from 4.9 per cent in 2010-11. It was six and 6.5 per cent in the preceding two years. The government projects a fall in the ratio to 5.1 per cent. We expect this to be at least 5.4 per cent. It could be worse but not more than what it has been on average in the past four years (5.8 per cent). And this is unlikely to hurt growth in 2012-13 or destabilise the financial markets.

    The rating agency has no estimates of the expected fiscal deficit or its acceptable level. But it expects faster “progress” in fiscal reforms during the year to stop itself from downgrading India. It even prescribes the reforms it expects, which include a reduction in restrictions on foreign investments in banking, insurance and retail. Foreign investment in retail is a good idea, but I do not see a connection between this and the fiscal deficit. And why should a failure to allow foreign direct investment into specific sectors lead to a downgrade?

    The assessment loses credibility when it becomes prescriptive and seems to push the envelope for some particular investments. Happily, the markets are smarter and the India growth story is intact.
     
  15. sob

    sob Moderator Moderator

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    Yes Pranab Da
     
  16. cir

    cir Senior Member Senior Member

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    Say what you may,but investors are voting with their feet:

    Updated May 2, 2012, 10:07 a.m. ET
    .
    India Rupee Falls to Four-Month Low

    By SUDEEP JAIN

    MUMBAI – The Indian rupee fell to a near four-month low against the U.S. dollar Wednesday as strong demand for the greenback from oil importers and reduced global risk appetite thwarted the central bank's attempts to arrest the local unit's slide.

    The Reserve Bank of India likely sold a modest amount of dollars when the greenback was trading at the psychologically important level of 53.00 rupees, four dealers said.

    But the relief was short-lived as a slew of negative manufacturing data from the euro zone sparked a rout in the common currency and soured sentiment toward other risk-sensitive currencies such as the rupee.

    The dollar was at 52.96 rupees late Wednesday in Asia, after touching 53.01 rupees earlier in the session and up from 52.73 rupees late Monday. The greenback last traded above 52.96 rupees on Jan. 5.

    Local markets were closed Tuesday for a public holiday.

    With the rupee now close to its all-time low of 54.2925 to the dollar that it hit on Dec. 15, all eyes are on the central bank to see if it will intervene more aggressively to defend the local unit.

    "RBI intervention is likely this week but it may not be enough to reverse the rupee's trend as both global and domestic cues are negative," said Bitupan Majumdar, a foreign-exchange analyst at JRG Wealth Management.

    He expects 53.47 rupees as the next resistance level for the dollar.

    The greenback could rise to 54.00 rupees within a month if investor sentiment remains negative, said Abhishek Goenka, chief executive of India Forex Advisors Pvt. Ltd.

    In the sovereign-debt market, Indian government bonds rose on bargain-buying after their recent sharp losses.

    The benchmark 8.79% 2021 bond recovered from an intraday low of 100.55 rupees to close at 100.99 rupees. It had ended at 100.76 rupees Monday.

    A heavy supply of government paper this week is likely to limit gains in bond prices in the near term, said a dealer with a state-run bank.

    The RBI is set to sell 180 billion rupees-worth of government bonds Friday. It auctioned 150 billion rupees of Treasury Bills Wednesday.

    India Rupee Falls to Four-Month Low - WSJ.com
     
  17. panduranghari

    panduranghari Senior Member Senior Member

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    Yeah whatever.

    Seen this before? Yes you have but you STILL come out with tripe and pure drivel.

    As Forrest Gump said Stupid is what Stupid does.

    [​IMG]
     
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  18. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    Nothing new in the way our currency fluctuates. The reasons for the fluctuation are important. Nothing that we are overly worried about.
     
  19. no smoking

    no smoking Senior Member Senior Member

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    The difference between China and India is trade surplus. When China is accumulating a huge pile of money from its yearly international trading surplus, india got only 2 years black figure on its trading account since independence, which put a shadow on its ability of paying back. And thing turns even worse, when india gov cannot take some radical reform policy to improve its cashflow.

    If any company fails to make profit for almost 60 years and keeps relying on loan and equity expansion to make living, would you feel confident about its future?


    Yes, you can argue how bad china actually is, but that won't make india's problem go away and certainly won't turn india shinning more.
    Yes, you know the problem, but the point is that you fail to do anything about it because of inter political pressure:
    You know you have problem in your labor law since 2000, but so far you can't modify it.
    You know you have problem in your primary education system for long time, but so far no significant improvement was made.
    You know you need to bring foreign money into your retail industry, but you put it on hold as many people oppose it.
     
  20. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    India's underground economy is probably twice as big or more as the reported economy
    For any analyst to do accurate ratings or projections will never come close. Better to stay
    Out of view of these moronic rating agencies that destroyed the economies of most of
    the Western world. 5-10 trillion in subprime mortgages were AAA rated by these analysts
    Leading to global bank failures. Now these mortgages are worth 2 cents on the dollar.
     
    Last edited: May 4, 2012
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  21. panduranghari

    panduranghari Senior Member Senior Member

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    Exactly how can people take rating agencies seriously.
     

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