India's Credit Rating is almost Junk!

Discussion in 'Economy & Infrastructure' started by Rahul92, Apr 26, 2012.

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  1. Rahul92

    Rahul92 Senior Member Senior Member

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    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".

    [​IMG]

    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!
     
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  3. Predator

    Predator Regular Member

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  4. panduranghari

    panduranghari Senior Member Senior Member

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    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.
     
  5. trackwhack

    trackwhack Tihar Jail Banned

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    Comedians! Both GOI and rating agencies.
     
  6. p2prada

    p2prada Stars and Ambassadors Stars and Ambassadors

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    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.
     
  7. niharjhatn

    niharjhatn Regular Member

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    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.
     
  8. utubekhiladi

    utubekhiladi The Preacher Elite Member

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    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

    [​IMG]

    this poster clearly says, what they want... :rofl: 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..
     
    Last edited: Apr 26, 2012
  9. panduranghari

    panduranghari Senior Member Senior Member

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  10. niharjhatn

    niharjhatn Regular Member

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    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.
     
  11. panduranghari

    panduranghari Senior Member Senior Member

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

    cir Senior Member Senior Member

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    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。

    :rofl:
     
  13. cir

    cir Senior Member Senior Member

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    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
     
  14. pmaitra

    pmaitra Moderator Moderator

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    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!
     
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  15. pmaitra

    pmaitra Moderator Moderator

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    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.
     
  16. sayareakd

    sayareakd Moderator Moderator

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    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.
     
  17. pmaitra

    pmaitra Moderator Moderator

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    ^^

    Mr. Sayare, I am not so optimistic about transparency.
     
  18. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    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?
     
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  19. Iamanidiot

    Iamanidiot Elite Member Elite Member

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    GSTlowers tax burden rather than being an additional tax problem
     
  20. niharjhatn

    niharjhatn Regular Member

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    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.
     
  21. panduranghari

    panduranghari Senior Member Senior Member

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    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.





    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.

    [​IMG]

    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


    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:

    [​IMG]

    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

    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.
     
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