Since the S & P report is behind a pay wall, here is the gist
Bangalore, Oct 1, 2014, DHNS:
The international rating agency Standard & Poor’s decision to revise India’s sovereign rating from “negative’’ to “stable’’ is good for the economy.
The upgradation will send positive signals to the investment community about the economy’s prospects. The BBB- status which it currently has is the lowest investment grade, and a further downgrading, about which there were indications some time ago, would have had bad consequences.
S&P has only brought its rating in line with those of two other agencies — Moody’s and Fitch. The outlooks of all these agencies have changed in the last many years on the basis of the strength of various indicators of the economy and the environment, including the ability of the government to take necessary decisions. Moody’s outlook has not been negative in the recent past and Fitch upgraded it last year. The present convergence among all three agencies will make the ratings more credible.
The agencies’ credibility had taken a hit during the 2008 global crisis because they had given good certificates to the financial instruments which later turned toxic and brought the banking industry down.
But their ratings still carry a lot of weight because many investment firms can put their money only in investment-grade countries. A downgrade will also lead to the outflow of money. About $ 20 billion has come into India as investment till August this year. This would have been higher if the outlook and ratings on India had been higher. In any case, there is a stronger psychological and mandatory basis for investment in India now and it is for the government to build on it.
S&P has clearly stated that it was upgrading India because the new government provided an improved political setting that offered a conducive environment for reforms. In line with the rating of the country, the agency has upgraded the rating of some major Indian companies also, including government companies. This can work to the advantage of these companies and generally the corporate sector.
But much needs to be done to fully benefit from the rating revision. The economy is still not out of the woods. The S&P report used six parameters to assess the Indian economy. It found the economy was sufficiently strong in terms of external liquidity and international investment, taken together. It was neutral on two factors—monetary flexibility and governance.
On three other factors – growth, fiscal flexibility and debt position—it found that the economy is weak. There is in fact a cautionary note also that another downgrade may be likely if performance does not improve in these weak areas. The government should therefore draw the right message from the report.
Bangalore, Oct 1, 2014, DHNS:
The international rating agency Standard & Poor’s decision to revise India’s sovereign rating from “negative’’ to “stable’’ is good for the economy.
The upgradation will send positive signals to the investment community about the economy’s prospects. The BBB- status which it currently has is the lowest investment grade, and a further downgrading, about which there were indications some time ago, would have had bad consequences.
S&P has only brought its rating in line with those of two other agencies — Moody’s and Fitch. The outlooks of all these agencies have changed in the last many years on the basis of the strength of various indicators of the economy and the environment, including the ability of the government to take necessary decisions. Moody’s outlook has not been negative in the recent past and Fitch upgraded it last year. The present convergence among all three agencies will make the ratings more credible.
The agencies’ credibility had taken a hit during the 2008 global crisis because they had given good certificates to the financial instruments which later turned toxic and brought the banking industry down.
But their ratings still carry a lot of weight because many investment firms can put their money only in investment-grade countries. A downgrade will also lead to the outflow of money. About $ 20 billion has come into India as investment till August this year. This would have been higher if the outlook and ratings on India had been higher. In any case, there is a stronger psychological and mandatory basis for investment in India now and it is for the government to build on it.
S&P has clearly stated that it was upgrading India because the new government provided an improved political setting that offered a conducive environment for reforms. In line with the rating of the country, the agency has upgraded the rating of some major Indian companies also, including government companies. This can work to the advantage of these companies and generally the corporate sector.
But much needs to be done to fully benefit from the rating revision. The economy is still not out of the woods. The S&P report used six parameters to assess the Indian economy. It found the economy was sufficiently strong in terms of external liquidity and international investment, taken together. It was neutral on two factors—monetary flexibility and governance.
On three other factors – growth, fiscal flexibility and debt position—it found that the economy is weak. There is in fact a cautionary note also that another downgrade may be likely if performance does not improve in these weak areas. The government should therefore draw the right message from the report.
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