S&P team to visit India next week for review

Debate is on the level of fiscal deficit and its sustainability.

A high level Standard & Poor's Ratings Services team, led by Paul Coughlin, S&P's managing director for Asia Pacific corporate and government ratings, will be in India next week for a possible rapid review of the country's rating.

S&P had revised the outlook on India's long-term foreign currency rating from negative to stable in December. However, at that time it had left the rating untouched at a sub-investment BB grade.

Another global rating agency, Moody's Investor Service, in January raised India's foreign currency ratings to investment grade Baa3 from Ba1.

"The difference in India ratings between the two global agencies is three notches. This is a bit unusual. With most of the macro economic parameters looking positive, S&P could probably want to take a relook at India at this juncture. Possibly it does not want to be out of sync," said a source familiar with the development.

The team will meet officials from the finance ministry and the Reserve Bank of India. Usually, the country report "" prepared by the visiting team "" is scrutinised by a rating committee which takes the decision on a possible outgrade or downgrade. "The S&P team is coming to India after six months. In normal circumstances, the team does not visit a country at this frequency unless there is something special (about the country). Since, there are too many positive attributes of the Indian economy now, one can expect an upward revision (of rating)," said a source.

The 10.4 per cent GDP growth in third quarter of fiscal year 2003-04, a strong rupee and about $110 billion foreign exchange reserves are the tale-tell signs of the strength of the India economy.

S&P has refrained from upgrading India on account of the government's "continuing difficulty in addressing fiscal problems and structural reforms".

Its revision in outlook was triggered by increasing external liquidity on the back of rising forex reserves and modes, debt service payments. The triggers for Moody's upgrade were reduction in external vulnerability, rising foreign investment and vibrant economic growth.

Sources said the impending elections may not deter the agency for taking a relook at India as political stability has been taken for granted. "Nobody can dispute that the economy is growing. The debate is on the level of fiscal deficit and its sustainability. Even though there has not been any budget, the fiscal numbers are there for the agency to see," said another source.

A recent S&P report said sovereign ratings in the Asia-Pacific region would be mostly stable and the landscape would be dominated by elections due in at least eight Asian countries.

"Some of them will not be a credit story but generally throughout the region we do see the course of the campaigns, the way they are conducted and their outcomes having an important impact on the economic management," Coughlin has said.

He also said that elections in Australia, India, South Korea and Malaysia were either unlikely to have an impact or would be positive for their ratings. Elections are also due this year in Japan, Taiwan, Philippines, Indonesia, Hong Kong and Thailand.

Of 18 sovereigns rated by S&P in the region, five were upgraded in 2003 (Australia, Malaysia, Thailand, the Cook Islands and Indonesia). The Philippines and Papua New Guinea were downgraded.