02 September, 2014 22:18 IST
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How experts view S&P downgrade on India outlook
Source: IRIS (25-APR-12)
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Standard & Poor`s Ratings Services affirmed the `BBB-` long-term and `A-3` short-term unsolicited sovereign credit ratings on India. Standard & Poor`s also revised the outlook on the long-term rating to negative from stable. The transfer and convertibility assessment for India is unchanged at `BBB+`.

We have collated views of experts on the S&P outlook . The same are as follows:

Sonal Varma, Economists, Nomura Financial Advisory and Securities (India)

S&P cited slowing investment and economic growth, and the widening current account deficit as the main reasons. S&P expects the government to face headwinds in implementing policy measures to improve its fiscal and macroeconomic parameters in the near future, given the unfavorable political environment. It assigned a one-in-three chance to an actual downgrade within the next 24 months. A downgrade is possible if growth prospects and/or the political climate worsens, the external position deteriorates, or if fiscal reforms slow. On the other hand, ratings could stabilize again if the government implements initiatives to reduce structural fiscal deficits and improve its investment climate. Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertilizer subsidies, or an early implementation of a goods and service tax.

We believe there is a low likelihood of a rating downgrade actually occurring as we expect the economy to see some cyclical rebound in the near term, the debt-to-GDP ratio is likely to remain stable, and the fiscal deficit should not worsen substantially. The only risk to this view is FX reserves declining materially. 

Siddharth Shankar, Economist, Director, KASSA Group.

The outlook downgrade is no surprise, it is just that someone has come and told us what we actually know. I do not expect the 4th qtr GDP number of the last fiscal to be more than 5.5% and going forward too, the probability of its going up sharply is low. US is stable and trying to settle, Europe is still struggling and it would be couple of years before Europe gets into a stable mode, growth will come post that. The way inflation in India is moving and the way RBI has cut interest rates the probability of savings going up is not there. Since banks offer a -ve interest rate gold imports will continue to rise putting pressure on the rupee and thus further inflation. I do not see oil prices coming down anytime soon thus worsening the deficit situation. In case the monsoon plays a spoil sport this year we are in for very bad times.

The government faces perhaps one of the widest budget deficit among the emerging economies and borrowing needs for 12-13 are huge. The gap last year was about 6% and going forward there is no reason to believe that the deficit will fall. In case it falls due to disinvestment or auction of natural resources like the spectrum liquidity will be pulled out of the system which again would mean further inputs from RBI and thus inflation.

At the current stage of the Indian economy monetary policy or fiscal policy will be of no help, we need to improve efficiency, cut consumption and ask banks to lend to businesses as easily as they lend to buy cars.

Abhishek Goenka, Founder & CEO, India Forex Advisors

Standard and Poor`s (S&P) revised its outlook on India, which will affect the International Lending rates for India and the cost of borrowing from overseas would get expensive. The Increased rate, will be directly passed on to the Corporate Sector which are already having issues raising funds like Power, Infrastructure, Real Estate etc, The International Funding for ECB, FCCB will also get affected which will ultimately affect Indian GDP. In the month of April, we have seen net outflows of Rs 7,598 million from Equity market. The International Funds, mainly the stronger ones, who invest as per the rating standards of the countries, would restrict themselves from investing aggressively in India. The markets sentiment is already negative and any such negative news would further push equities and currency on a downward trajectory.

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.


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