Top brass of S&P to visit India soon

A response from S&P on the country’s sovereign rating was sought after two of its peers—Moody’s Investor Service and Fitch Ratings—gave their views on the matter recently. Moody’s upgraded India to ‘Ba1’ while Fitch reaffirmed its ‘BB’ rating.

Global rating agencies are typically tight-lipped and do not reveal whether rating reviews are on, and Ogawa declined comment on specifics. Ogawa, however, referred to S&P’s January 8, 2003 international release on India to put forward its view on the country’s ratings for now.

Interestingly, unlike Moody’s and Fitch Ratings, which “gushed” on India’s external liquidity position, S&P’s view is rather terse: “The ratings (current) are supported at their current levels by India’s ample external liquidity. Record high foreign exchange reserves now easily exceed six times the level of short-term external debt owned by the public and private sectors”.

It said that “the negative outlook on the ratings reflects concerns that the long-term trajectory of the government’s debt burden may continue to worsen even as the economy grows at about five per cent per year and the forex exchange reserves remain high”.

S&P’s view on India is seen by many as being the “harshest” among all global rating agencies. It had downgraded the country’s local debt to junk status—‘BB+’—sometime back leading to a furore among local authorities.

It remains to be seen whether the substantial improvement in India’s external liquidity position with forex reserves over $73 billion will lead to a country-ratings upgrade by S&P. Both Moody’s and Fitch Ratings saw enough merit in these factors to upgrade and affirm India ratings respectively.

On August 2, 2002, S&P’s executive managing director, Edward Z Emmer, had given the following as one of the reasons why India’s sovereign rating had fallen to ‘BB-’ from ‘BB+’: “… is because of the growing debt burden. And banks have played a part. To the extent the central government delays or avoids difficult steps to make banks healthy, it only adds to the central governments own debt burden (implicit or explicit), and affects the sovereign rating”.