India's Credit Rating is almost Junk!

[Rahul92]

India is paying dearly for the Central Government's dithering on crucial economic reforms and general lack of governance. The lack of any interest in the UPA to push for measures that can contribute to enhanced economic growth, is a matter of serious concern.

Rather than work toward improving economic and social welfare, the UPA (read Congress) is busy firefighting a series of scams: 2G, CWG, Abhishek Manu Singhvi, and Bofors. It is only expected that when it comes to survival, the UPA will only be bothered about protecting its turf and political votebank.

Yesterday, Standard and Poor's (S&P), a leading credit agency, lowered India's rating outlook to negative and warned of a downgrade in two years if there is no improvement in the fiscal situation and the political climate continues to worsen.


The lowering of outlook from Stable (BBB+) to Negative (BBB-) is expected to make external commercial borrowings expensive for Indian corporates. It may also have implications for the capital market.

BBB- is the lowest investment grade rating, just above Junk status.

S&P said that, "the outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish or progress on fiscal reforms remains slow in a weakened political setting".

Further, it said that the negative outlook signals likelihood of the downgrade of India's sovereign within the next 24 months, especially "if its external position deteriorates, its political climate worsens, or fiscal reforms slow".

What is Credit Rating? Any form of debt (i.e. money borrowed) has to be repaid. So before you lend money, you would like to perform a background check on the borrower's repayment capacity, i.e. ability and willingness to repay the debt. In other words, this background check is used to test the creditworthiness of the borrower.

Based on the result of the background check, a credit rating is used to assess the creditworthiness of a borrower or issuer of debt. This kind of credit rating is assigned by a credit rating agency.

To understand what credit rating is all about (and what this kind of a revision means), read The Explainer: Credit Rating, which first appeared on this blog on August 5 last year.







BJ's nocabbages: India's Credit Rating is almost Junk!

 

[Predator]

now the credit rating agencies are using outright blackmail to force 'reforms'

here's moody doing the same

UPA Government a drag on economy, says Moody's

 

[panduranghari]

Well inspite of the AAA rating enjoyed by Great Britain, its in recession and no one is willing to invest there. India is doing well. These credit ratings are useless. Didn't these agencies give Lehman brothers securities AAA rating? Says it all.

 

[trackwhack]

Comedians! Both GOI and rating agencies.

 

[p2prada]

Is it possible this rating was also determined by India's inability to pay off massive bills from Iran for the oil purchase? I doubt it, but this is an excellent proof of India's current economic woes.

Credit rating is very important. Considering GoI is pushing away FDI to control the Rupee, it won't matter much the way it is going.

 

[niharjhatn]

Well inspite of the AAA rating enjoyed by Great Britain, its in recession and no one is willing to invest there. India is doing well. These credit ratings are useless. Didn't these agencies give Lehman brothers securities AAA rating? Says it all.

The financial crisis in the US can in fact be DIRECTLY linked to these credit rating agencies - giving risky deals AAA ratings (i.e. same level of security as govt bonds).

All the credit rating agencies and all the big banks and financial conglomerates (city group) were all working together.

 

[utubekhiladi]

now west has found another tactics to blackmail Indian government to open up FDI in retails. why do we even care what western ratings agency

this poster clearly says, what they want... this rating system is nothing but blackmail

it says "ease restrictions on foreign ownership of various sectors such as banking, insurance, retail(FDI).."

we should not give shit to such ratings system owned by americans..

India is doing just fine..

 

[panduranghari]

Credit rating is very important. .

Its not. We have to move out of the debt growth paradigm.

The Most IMPORTANT Video You'll Ever See (part 1 of 8) - YouTube

Please see the 8 part video linked above.

The mathematical limit for debt has been reached and now we are going to see the drop.

 

[niharjhatn]

now west has found another tactics to blackmail Indian government to open up FDI in retails. why do we even care what western ratings agency.

Perhaps ironically, S and P's previous CEO was Indian (Deven Sharmam left in 2011).

Even citigroup's CEO is Indian in fact - Vikram Pandit.

 

[panduranghari]

Perhaps ironically, S and P's previous CEO was Indian (Deven Sharmam left in 2011).

Even citigroup's CEO is Indian in fact - Vikram Pandit.

Left or forced out? He downgraded American debt from AAA to AA.

 

[cir]

Today these agencies are useless simply because they are painting a bleak picture of the Indian economy。

Tomorrow the same agencies are THE source of truth and certainty because they are trumpeting the cause of a "shining" India。

 

[cir]

In search of an S&P upgrade, India got a shock

By Manoj Kumar

NEW DELHI | Fri Apr 27, 2012 12:53am IST

NEW DELHI (Reuters) - S&P credit analyst Takahira Ogawa listened politely as officials at India's finance ministry made an hour-long pitch for a ratings upgrade, citing economic growth prospects, revenues and their efforts to contain the government's fiscal deficit.

At the meeting two weeks ago, officials argued that tax returns were rising and debt levels were on the decline compared to gross domestic product, two officials who were at the meeting told Reuters.

Singapore-based Ogawa gave no sign of what he was thinking - and could not immediately be reached for his version of events - but evidently he left unconvinced.

On Wednesday, the ratings agency cut its outlook on India's BBB- rating to negative from stable and warned it had a one-in-three chance of losing investment-grade status, sending shockwaves through the ministry. Its decision could raise costs for Indian borrowers and undermine foreign investor confidence in Asia's third-largest economy.

"We were not expecting this downgrade," one senior adviser at the ministry said.

The misplaced optimism before the cut suggest the finance ministry may be out of touch with opinion among private economists, investors and even the central bank about the faltering economy. But it also reflects the view in New Delhi that India is unfairly saddled with a low sovereign rating.

In search of an S&P upgrade, India got a shock | Reuters

 

[pmaitra]

now west has found another tactics to blackmail Indian government to open up FDI in retails. why do we even care what western ratings agency

this poster clearly says, what they want... this rating system is nothing but blackmail

it says "ease restrictions on foreign ownership of various sectors such as banking, insurance, retail(FDI).."

we should not give shit to such ratings system owned by americans..

India is doing just fine..

I second that part in blue above.

Standard and Poor's recommendations:

• Reduce fuel and fertilizer subsidies - I agree.
• Introduce a nationwide goods and services tax - No incumbent will do that, and moreover, if we are withdrawing subsidies, there is no justification to introduce more taxes; rather, some existing taxes and duties should be eased or discontinued.
• Ease restriction in foreign ownership of various sectors such as banking, insurance, and retail - In other words, open up and make yourself vulnerable or we will give you bad rating.

I say S&P, go and troll elsewhere. We couldn't give, even if we tried, a tuppence about such imbecilic recommendations!

 

[pmaitra]

In addition to what I said above, I also think India needs to pay off its debts. We need to make this 'credit rating' thing irrelevant. Why on earth should we have to borrow money anyway? Aaah, I see it. Those bugger are sitting in the government, borrowing money, and stashing them in the Swiss Banks.

 

[sayareakd]

as long as we are not defaulting on our debts it is good, people know that Indian Eco is based on strong fundamental and our system is transprant, unlike others.

 

[pmaitra]

^^

Mr. Sayare, I am not so optimistic about transparency.

 

[kickok1975]

Who cares. Some countries with best rating are borrowing most money from those with less favorable ratings. If you use cash all the time, why do you concern what bank has to say?

 

[Iamanidiot]

GSTlowers tax burden rather than being an additional tax problem

 

[niharjhatn]

Today these agencies are useless simply because they are painting a bleak picture of the Indian economy。

Tomorrow the same agencies are THE source of truth and certainty because they are trumpeting the cause of a "shining" India。

The word of a credit rating, especially one of the big 3, is honestly not worth the virtual paper they are printed on. It has nothing to do with India, and all to do with making $$$ for themselves and their friends.

They have been ripping off the citizens of their own country for 15 years, since the days of the huge internet stock bubble. As was shown in the US congressional hearings, they can't back up their own 'judgements'.

Please try and differentiate between other agencies and the big three credit rating agencies who have been involved in screwing over the world (including Chinese corporations). And it has nothing to do with economic outlook - go and read what an S and P rating means.

 

[panduranghari]

In addition to what I said above, I also think India needs to pay off its debts. We need to make this 'credit rating' thing irrelevant. Why on earth should we have to borrow money anyway? Aaah, I see it. Those bugger are sitting in the government, borrowing money, and stashing them in the Swiss Banks.

Hi pmaitra,

No world debts will ever be paid. Take this from me and take it for what its worth.

Can USA pay its 14trillion debt? No. To pay it, they will have to destroy the purchasing power of US dollar. If US dollar dies, UA will be just another country. USA prints its own currency and pays for goods with it. Its like having a bank at home and not worrying about income.

IMF was formed with 1 intent, to indebt the third world and this control their resources. They did it in Panama, Pakistan, Brunei, Africa. They tried doing this to India in 1991 when India kept its gold on loan to get emergency dollar funding.

1991 India economic crisis

By 1985, India had started having balance of payments problems. By the end of 1990, it was in a serious economic crisis. The government was close to default, its central bank had refused new credit and foreign exchange reserves had reduced to such a point that India could barely finance three weeks' worth of imports. India had to airlift its gold reserves to pledge it with International Monetary Fund (IMF) for a loan.

The crisis was caused by currency overvaluation; the current account deficit and investor confidence played significant role in the sharp exchange rate depreciation.[2] [3] [4] [5]

The economic crisis was primarily due to the large and growing fiscal imbalances over the 1980s. During mid eighties, India started having balance of payments problems. Precipitated by the Gulf War, India's oil import bill swelled, exports slumped, credit dried up and investors took their money out.

In mid-1991, India's exchange rate was subjected to a severe adjustment. This event began with a slide in the value of the Indian rupee leading up to mid-1991. The authorities at the Reserve Bank of India took partial action, defending the currency by expending international reserves and slowing the decline in value.However, in mid-1991, with foreign reserves nearly depleted, the Indian government permitted a sharp depreciation that took place in two steps within three days (July 1 and July 3, 1991) against major currencies.[2]

With India's foreign exchange reserves at $1.2 billion in January 1991[7][8][9] and depleted by half by June,[9] barely enough to last for roughly 3 weeks of essential imports,[8][10] India was only weeks way from defaulting on its external balance of payment obligations.[8][9]

The caretaker government in India headed by Prime Minister Chandra Sekhar Singh's immediate response was to secure an emergency loan of $2.2 billion[11][12] from the International Monetary Fund by pledging 67 tons of India's gold reserves as collateral.[1][12] The Reserve Bank of India had to airlift 47 tons of gold to the Bank of England[6][7] and 20 tons of gold to the Union Bank of Switzerland to raise $600 million.[6][7][13] National sentiments were outraged and there was public outcry when it was learned that the government had pledged the country's entire gold reserves against the loan.[6][10] Interestingly, it was later revealed that the van transporting the gold to the airport broke down on route and panic followed.[1] A chartered plane ferried the precious cargo to London between 21 May and 31 May 1991, jolting the country out of an economic slumber.[6] The Chandra Shekhar government had collapsed a few months after having authorized the airlift.[6] The move helped tide over the balance of payment crisis and kick-started Manmohan Singh's economic reform process.[7]

Think about it. What is a dollar or a rupee or a pound or a euro? They are just tokens. On its own they are worthless. The usability gives the currency the value. No use, no value. What gives US dollar the value? Its military might, its innovative edge, no. Its the usability.

If India wants to trade with Iran and buy oil, India used to buy dollars on global money markets or use its dollar reserves, gives dollars to Iran in exchange of oil. Iran cannot use these dollars to pay its employees. It has to convert it into Rial and pay its employees. The unabated printing of US dollars have a pernicious effect on the savings of third world countries who save mostly in Dollar reserves. The purchasing power of their dollar reserves decreases over time. Hence they print even more of their local currency, it leads to excess of local currency which people do not value and try buying other assets.

There have been many hyperinflation episodes in the world latest one being Zimbabwe. Weimar Republic of Germany 1920 – 23 (466 billion percent from starting value), Zimbabwe 2003 - Now (231 million percent from starting value), Argentina 1975 – 1983 (1,000 percent from starting value), Bosnia-Herzegovina 1992 – 93 (100,000 percent from starting value).

There is just one way to beat it.

Buy physical gold. We do not need to tell Indians to buy gold. Their love for it has been eternal. Recently the Chinese government also permitted their people to buy gold and silver.

The gold India had to loan in 1991 was brought back within 10 years and recently we bought even more from IMF.

IMF Sells Gold to India, First Sale in Nine Years (Update2) - Bloomberg

Nov. 3 (Bloomberg) -- The International Monetary Fund sold 200 metric tons of gold to the Reserve Bank of India for about $6.7 billion, its first such sale in nine years.

The transaction, equivalent to 8 percent of global annual mine production, involved daily sales from Oct. 19-30 at market prices and is in the process of being settled, the IMF said in a statement yesterday. The average price to India, the biggest consumer, was about $1,045 an ounce, an IMF official said on a conference call. Gold for immediate delivery gained 0.2 percent.

"The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their portfolio with gold," said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy in New Delhi. "Gold is a safe store of value compared to the U.S. dollar."

The IMF sale accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low-income countries. Asian nations, which have amassed stockpiles of foreign currency reserves since the 1998 financial crisis, have shown increased interest in diversifying out of U.S. assets as the dollar loses value against other currencies..................................


"There seems to be consensus among the central banks that it's better to cut down on currency holdings and diversify into assets like gold, which has upside potential," Krishna Reddy, a precious metal analyst at Way2Wealth Commodities Pvt. said in Mumbai. "The Reserve Bank of India gold purchase is a clear reflection of this belief."

Gold demand is generally inelastic in currency terms because its primary use is as a wealth reserve. This is in contrast to industrial metals where demand is relatively inelastic in weight terms. In other words, gold flow by volume should be observed to decline as the price rises while gold flow by value might remain steady. Yet India's gold intake has risen from $4.1B in 2002 to $33.8B in 2011. That's an 824% rise in demand in currency terms at the same time as the price of gold in dollars rose only around 600%. And this while running a trade deficit:

9 DEC, 2011, 01.51PM IST, REUTERS
India facing serious balance of trade problem: Rahul Khullar, Trade Secretary

India facing serious balance of trade problem: Rahul Khullar, Trade Secretary - The Economic Times

NEW DELHI: India is facing a serious balance of trade problem, Trade Secretary Rahul Khullar said on Friday, as export figures so far in the current fiscal year have been overestimated by $9 billion.

India's trade deficit for the 2011/12 fiscal year is seen in the range of $155 billion to $160 billion, he said.

Khullar also said the country is not quite on course to meet the 2011/12 export target of $300 billion.

It seems Indians are importing shed loads of gold and thats contributing to the balance of payment problem.

The world is changing and in the changing world people will hold gold as a wealth reserve, not tokens of currency. China can feel very pleased about its trillion dollar reserves. They never learnt from the Japanese who also held trillion dollars in reserves.

If you owe the bank 1000$, its your problem. If you owe the bank a trillion dollars, its the banks problem.