Business: Jun 12, 2012

What S & P said about India? A new report dated June 8, 2012 raised fresh questions over India economy, which is affected by high government borrowing, rising imports and political compulsions that have stalled reforms in key areas. What he said in the
report?

In a report titled "Is India Be The First BRIC Fallen Angel?", S & P warned that India risked losing their "investment grade" status and erode its appeal as a global business hotspot.

What, according to the report, is the biggest roadblock to achieve more rapid growth in India?

The report blamed the "shared leadership in the Center" as one of the biggest hurdles for ushering in economic reforms to stimulate growth and encourage investment. The division of roles between the politically powerful Congress party president (Sonia Gandhi) and determined Prime Minister, has weakened the framework for making economic policy in India, he said. The agency added that the Cabinet is made largely of Sonia Gandhi and leaders of allied parties. Therefore, the Prime Minister often seem to have a limited ability to influence his Cabinet colleagues and proceed with liberalization policies, which promotes and constantly advocates in his public speeches, he said.

What the report says about the current pace of economic reform in India?

The report says that the combination of weakening political context for further reform, along with economic deceleration, raises the risk that the government can not take modest steps back, away from economic liberalization in the case of unexpected economic shocks.
As the government has reacted to the latest S & P report?

The government dismissed S & P's contention that India could be the first BRIC nation to shrink and fall below investment grade in the ratings. (See De-coded: Credit Rating)

What about other BRIC countries?

Among the four BRIC countries, India has the lowest credit rating and is the only one with a negative outlook. Russia and Brazil have a 'BBB' long-term foreign currency ratings, and China has a 'AA-' rating, and all three have stable outlooks. China was the first BRIC sovereign to receive investment-grade rating from Standard & Poor's (in February 1992), followed by Russia (in January 2005), India (in January 2007), and Brazil (in April 2008)

Is not S & P comment on India economy in April as well?

In April, the agency had kept India's rating to BBB-, which is just a notch above "junk" that carries a high risk of default by the government. But it was downgraded India's credit outlook to negative in a sign that the government may be on a dangerous course to borrowing beyond their ability to pay. Another downgrade would mean the Indian government would have to pay higher interest rates on its public borrowing.

Why is the timing of information so critical?

The report comes as India's macroeconomic managers struggle for solutions to deal with a string of economic crises as reflected in the recent data that confirmed signs of overwhelming industrial slowdown.

What recent data show?

India economy is a phenomenon to an increase of 5.3% in the last quarter of 2011-12, the slowest since 2003-04. Factory output data for April, released on Tuesday, confirmed that the slowdown persists. Factory output grew by a flat 0.1% during the month

What broke down growth?

The industrial sector, which represents 80% of India's industrial production, which slowed down considerably. It grew by 0.1% in April. Companies trying to cut corners to stay afloat, such as increasing input costs and costlier borrowing forced companies to give up planned investments, offering a lesser number of jobs and lower pay hikes. Expensive borrowings and tickets already dampened investment as companies defer capacity expansion plans, hurting job prospects. Companies can pay bills to cut corners in difficult times, offering a lower salary hikes that just take care of rising prices.

Business

Tuesday, June 12, 2012

S&P: more ranting than rating

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