Bankers, economists, corporations and industry bodies have en masse junked global credit rating agency Standard and Poor's downgrade of India's local currency debt ratings to junk status.
"We have very good export growth so far. Industrial growth in the first four months (of the year) has also been good and major fears of drought have fortunately receded," finance secretary S Narayan told reporters when asked if the downgrade would affect economic growth. He said the downgrade would also not affect the government borrowing programme.
"Their statement about a possible downgrading in future on other parameters is untenable by facts," said Amit Mitra, secretary-general of the Federation of Indian Chambers and Commerce and Industry (Ficci).
More From This Section
S&P cut local debt ratings to junk bond levels on Thursday, citing a mounting debt burden and vulnerable public finances. It cut the long-term local currency rating sovereign rating to BB-plus from BBB-minus and the short-term rating to B from A3.
Most of bankers and corporate chiefs contacted by this newspaper felt the downgrade was unjustified and more of a political decision, not supported by economic fundamentals.
However, the Reserve Bank of India's annual report released last month categorically stated that unless timely measures are put in place to accelerate the pace of industrial investment and economic reforms, widespread drought may adversely affect the incipient industrial recovery.
It also said the projected growth rate of 6-6.5 per cent would have to be pared. The RBI will reassess the growth projections in its mid-term credit policy set to be unveiled on October 29.
"All macro parameters are positive. There is no fresh fiscal slippage as the Reserve Bank of India's calender shows the government borrowing plan in fact be a bit lower than the budgeted programme. There is no need to panic," said a senior banker.
India's economy is one of the world's strongest with record exchange reserves, low inflation and a record grain surplus, Mitra said, adding that the economic slowdown had bottomed out.
"The move is totally unjustified. All sectors of the economy are picking up. This is a pressure tactic to hasten disinvestment," said another bank chairman.
"Nothing has happened overnight to merit such a downgrade. The debt problem is not new and political differences have existed for some time now," said B B Bhattacharya, economist at the New Delhi-based Institute of Economic Growth.
D D Rathi, group executive president & CFO, Grasim Industries, said "It is more of a technical issue by nature. Though the impact on rupee debt would be neutral it may have a temporary impact on the equity market sentiments. Good quality corporates would not be affected and there will neither be an impact on the availability of funds nor on the borrowing rates. Moreover, foreign institutional investors are hardly investing in government papers."
P P Kadle, executive director (finance & corporate affairs), Tata Engineering, said "I do not think the downgrade is justified on account of widening deficit. Many other countries, including the US and Japan, have previously taken the deficit financing route to achieve growth. Deficit funding is not a bad thing so long as it is used to improve the infrastructure."
On the same lines, Adesh Gupta, president and CFO, Indian Rayon said "It is unfortunate that such a rating has been given. The divestment programme has just been deferred and not shelved. Hence the issue should not have had such an impact. However, the liquidity position appears to be fundamentally strong and such a rating should not have much of an overall impact."