3rd May 2012
India is known for its improving economic factors. These factors include the GDP growth rate, rising export growth rate, financial services and foreign exchange reserves. Despite the impressive figures the latest opinion by a powerful lobby of the international credit rating agency Standards and Poors is rather dismal.It advises capital holders that india is no longer an "investment grade" destination. It has downsized India to a BBB minus rating. A BBB- rating is considered the lowest investment grade by market participants according to the official S&P website. Although some will argue that a "self-appointed" financial mediator's attempt to control a country's policies is absurd and illegitimate, personally I beg to differ.
Credit ratings do not strictly advise investors where to invest, they are merely one of the many tools to gauge a market's risk situation. These define credit risks which reflect the borrower's (or in this case, India's) ability to repay.This ability depends on many factors including salaries, collateral assets, the tax policies of that country etc.
The S&P site explicitly states that its credit ratings are not intended to be prognosis or a recommendation.They are merely to inform about the relative credit risk of a issuers. Also the credit quality of a certain issuers is subject to future events which can not be forecast. The assignment of credit ratings is not exact science. So reacting strongly to a certain institution's recommendations is not prudent for a sovereign country.
Having said this, one can not ignore the fact that credit ratings of relatively reliable agencies do play an improtant role in defining the credit worthiness of the country as an issuer. Here the matter of legitimacy of the institution needs to be reflected upon. The Standard and Poor's Ratings Services dates back to the year 1960 and owns the most quoted stock index in the world i.e. the S&P 500. The S&P entered India and associated itself closely to the NSE. Also, the most popularly tracked index of the NSE is the S&P CNX NIFTY. The opinion that investment by foreign companies is not profitable can not be completely disregarded. India is known for its tough bureaucratic scene and tax policies. Companies are bound to feel insecure about where their investments. The problem is also complicated by the unpredictable trends in the value of the rupee. Such factors could lead potential investors to other countries, mainly China.
The political situation also does not help matters. The UPA government's tenure has been marred with outrageous corruption scandals and incoherent tax policies among other faults. So accusing the S&P for blacklisting India for supposedly using their "remote control apparatus" is merely self aggrandizing. Instead of lashing out at we must look for solutions intended on building investment capacity.
Kavya Chaturvedi
India is known for its improving economic factors. These factors include the GDP growth rate, rising export growth rate, financial services and foreign exchange reserves. Despite the impressive figures the latest opinion by a powerful lobby of the international credit rating agency Standards and Poors is rather dismal.It advises capital holders that india is no longer an "investment grade" destination. It has downsized India to a BBB minus rating. A BBB- rating is considered the lowest investment grade by market participants according to the official S&P website. Although some will argue that a "self-appointed" financial mediator's attempt to control a country's policies is absurd and illegitimate, personally I beg to differ.
Credit ratings do not strictly advise investors where to invest, they are merely one of the many tools to gauge a market's risk situation. These define credit risks which reflect the borrower's (or in this case, India's) ability to repay.This ability depends on many factors including salaries, collateral assets, the tax policies of that country etc.
The S&P site explicitly states that its credit ratings are not intended to be prognosis or a recommendation.They are merely to inform about the relative credit risk of a issuers. Also the credit quality of a certain issuers is subject to future events which can not be forecast. The assignment of credit ratings is not exact science. So reacting strongly to a certain institution's recommendations is not prudent for a sovereign country.
Having said this, one can not ignore the fact that credit ratings of relatively reliable agencies do play an improtant role in defining the credit worthiness of the country as an issuer. Here the matter of legitimacy of the institution needs to be reflected upon. The Standard and Poor's Ratings Services dates back to the year 1960 and owns the most quoted stock index in the world i.e. the S&P 500. The S&P entered India and associated itself closely to the NSE. Also, the most popularly tracked index of the NSE is the S&P CNX NIFTY. The opinion that investment by foreign companies is not profitable can not be completely disregarded. India is known for its tough bureaucratic scene and tax policies. Companies are bound to feel insecure about where their investments. The problem is also complicated by the unpredictable trends in the value of the rupee. Such factors could lead potential investors to other countries, mainly China.
The political situation also does not help matters. The UPA government's tenure has been marred with outrageous corruption scandals and incoherent tax policies among other faults. So accusing the S&P for blacklisting India for supposedly using their "remote control apparatus" is merely self aggrandizing. Instead of lashing out at we must look for solutions intended on building investment capacity.
Kavya Chaturvedi
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