Thursday, July 31, 2008

Global agencies downgrade India's rating

Good politics does not always make good economics. The farm loan waiver and the Sixth Pay Commission payout will put a huge strain on the government's finances and as a result, the global rating agencies are now downgrading India.Sitting inside his office in Singapore's central business district, Tahakira Ogawa - director of global agency Standard and Poors keeps one eye on India. The deteriorating economic environment over the past few months has forced Ogawa to issue a warning that India may lose its investment grade rating and it may be downgraded to what is called the junk rating.Rating agencies say the government pay panel payout, higher oil and fertiliser subsidies, farm loan waiver and cut in duties on petroleum products are all putting a strain on the government's finances."The policy to give farm loan waiver and some other policies due to election year have out a lot of strain on the government's finances and we are being forced to re-rate India," says Ogawa."We don't expect growth beyond 7-7.5 per cent as there is a lot of stress on the fiscal position," says Aninda Mitra, VP, Moody's.Back home, even the RBI that has issued a clear warning that India's balance sheet is taking a beating due to high government spending and ballooning subsidies. And now with major downgrade warnings kicking in North Block officials are working overtime to ensure that India does not to lose the hard earned investment rating it received only 18 months ago

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