The Telegraph
Since 1st March, 1999
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Pressure plot in rating rebuke
- Govt, companies believe nothing in the economy has gone dramatically wrong to invite S&P downgrade

New Delhi, Sept. 20: The Indian government and many in India Inc feel Standard & Poor’s downgrade is a blatant attempt to pressure the country to tailor its politico-economic policies to suit the rating agency’s worldview.

Said S. P. Gupta, member of the Planning Commission: “We can’t run our country on the basis of outside views. The fiscal situation has remained more or less the same over the last five years. In fact, this year’s 5.3 per cent fiscal deficit is lower than the 6 per cent plus four years back when our rating was pegged at a far higher notch ... these downgrades are really reflective of their attempt to make us tailor our policies.”

Gupta, who holds the rank of a minister, is a key economist who advises government on economic policy. The government is debating whether to open up insurance, aviation and telecom to larger foreign equity holdings and management control, besides re-considering its privatisation policy, in the light of strategic concerns. Both are subjects in which foreign investors are keenly interested.

Soumitra Chowdhury, head of Icra, India’s top credit rating agency which has a tie-up with another global rating giant Moody’s, also reiterated Gupta’s analysis. “Looking at the overall economic scenario, by and large things are more or less the same as it was earlier. There is no significant deterioration on any front.”

Besides Standard and Poor’s, Fitch will also be undertaking a review of India’s ratings in November. It also claimed today that it is worried about the country’s stalled privatisation programme and widening fiscal deficit.

Besides the rating agencies, western diplomats have expressed concern on these issues in meetings with key economic ministers and bureaucrats. Increasingly, diplomacy in New Delhi has been subject to corporate pressure seeking concessions that could benefit them.

Often, feel government officials, this economic diplomacy goes beyond the realm of mere lobbying for certain sops and enters the realm of interference. At times on issues like FDI, foreign powers have even roped in domestic politicians to support their points of view.

Ficci president R. S. Lodha said: “This downgrade seems to be sending a political message rather than giving an objective rating. It would also be interesting to see what kind of messages S&P was sending before south-east Asian meltdown to countries that were involved.”

“If we take a broad account of India’s current standing, we discover that the country has the highest-ever foreign exchange reserves, the lowest ever inflation rate and the highest-ever food grain stocks,” the chamber said.

“The fiscal deficit itself is less than during the same period last year. Also, both the Central and state governments are taking measures to repay high-cost debts contracted earlier,” finance secretary S. Narayan said.

True to form, the finance ministry itself came out with a strong comment later in the evening rubbishing S&P’s contentions that India was going through a fiscal crisis. “In so far as debt-to-GDP ratio is concerned, it has been stable during the last 3-4 years. It is significant that there has been a reduction in the cost of borrowings over the last three years (by about 200 basis points) and this has been achieved along with the elongation in the maturity profile of loans. Such reduction in the cost of borrowings will have a salutary impact on the interest burden in medium and long term.”

The government also defended macro-fundamentals, saying industrial and export performance in April–July has been better during 2002-2003 compared with the corresponding period last year. The index of industrial production is up 6.4 per cent in July compared with 2.7 per cent.

Infrastructure growth is 6.9 per cent in August compared with 1.3 per cent in the same month last year. Similarly, exports have increased by 15.2 per cent compared with -0.7 per cent. Inflation came down to 3.5 per cent from 5 per cent on August 31.

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