The monsoon may dampen India’s growth, but for sovereign credit rating, how the government addresses fiscal issues is more important, says Deven Sharma, President, Standard and Poor’s in an e-mail interview to Rajesh Bhayani. He also discusses the state of financial markets globally and S&P’s plans for the Indian market. Edited excerpts:
How do you rate India’s current economic situation in view of the fiscal pressures and fears of a lower GDP due to delay in the monsoon? Does this warrant further downgrades in rating or change outlook?
S&P’s sovereign credit ratings are more focused on medium-term growth prospects than the short-term economic outlook. Our sovereign analysts tell me that while a delayed monsoon arrival might slow down India’s GDP growth rate, the more important factor to consider is how the government will manage its medium-term policies on fiscal consolidation and how the Reserve Bank will manage the balancing act between its objectives of monetary policy and purchase of government debt from the market.
After almost a year since world financial markets went into crisis, where do these markets stand? Which are the grey areas where problems may arise?
I think we are seeing a gradual recovery and return in confidence in international capital markets, though we are still a long way from returning to pre-crisis conditions. As you can see from the behaviour of debt markets in recent weeks, credit spreads have generally narrowed and issuance of new debt, particularly from more highly rated companies, has risen. The earnings of many large financial institutions have improved and the rate of writedowns has eased, so all this should be cause for cautious optimism. Things are looking up but there is always a possibilty of the unexpected. However, conditions in the capital markets feel more positive than a year ago.
From the growth perspective, where does India stands in the global map?
India is well poised from a growth perspective. In fact, India and China are expected to be the fastest growing countries in the world in 2009 and 2010. We expect the Indian economy to grow about 6 per cent this year and 7 per cent in 2010.
Where does Crisil stand in the overall business strategy of S&P? Do you favour any kind of restructuring in their ownership pattern?
Crisil is a very important part of S&P’s global network. First, it is the leading provider of financial market intelligence in one of the world’s most important economies, one that is of increasing interest to our customers worldwide. Through the combination with S&P, we can support the fast growing cross-border activities of Indian issuers and investors. And we can draw on Crisil’s insight and analytics to provide more information to international investors on Indian markets. That is a powerful offering for our clients in India and overseas.
At the same time, we are leveraging our talented workforce in India to support and resource S&P’s products and services internationally. So, we are very happy with how our relationship with Crisil is developing — and we are very comfortable with the current ownership structure.
More From This Section
Which are the new areas where you would like to venture or new products that S&P would introduce in India?
The Indian capital market continues to grow and we intend to enhance our presence in India by bringing the full set of services of S&P in India. We are looking at opportunities to offer S&P’s broader investment services in the Indian market, including equity research, credit analytics, data and information, and index products. We are in an excellent position to support Indian investors’ growing interest in international markets, as well as international investors’ growing interest in India.
How are the new rating regulations in US? Are they in any way limiting S&P’s role as an independent rating agency?
In general, we think that sound, internationally consistent regulation and oversight of ratings firms can be a good thing. It can support confidence in the market about ratings and reassure investors about the quality, transparency and integrity of what we do. That is good for investors, good for the market and therefore good for us. We very much share the objectives of the US administration in improving confidence in ratings and markets, and we are continuing our dialogue with policymakers in the US and around the world with these aims in mind.
Do you see need for regulating rating agencies per se, internationally and in India?
Interestingly, in India markets have been regulated since 1999 and Crisil has operated successfully in the regulated environment, which reinstates our view that regulatory oversight can be a good thing. The G20 nations have called for a coordinated approach to registering and regulating ratings firms internationally, based on their compliance with internationally recognised standards laid down by IOSCO, the global securities regulators’ body. We agree with this approach Because of the global nature of ratings and the capital markets, any regulatory framework needs to globally consistent. That would support investors’ confidence in the comparability, and hence usefulness, of ratings around the world.