""""S&P reduced India’s rating outlook to negative from stable, according to an e-mailed statement today, and added that “continued loose fiscal policy would result in a downgrade” in the nation’s credit rating. It affirmed India’s BBB- long-term credit rating, the lowest level in the investment grade.""""
Source: India Lowers Taxes, Straining Finances as S&P May Cut to Junk
While global economic conditions continue to be stressful, I would like to focus on the highlighted section of the above quote.
We must not forget that India isn't the only country resorting to extraordinary measures in extraordinary times. I would like to also say that unlike certain governments globally, the Indian Government hasn't ''thrown good money after bad'', and to the credit of local regulators, we have not had a massive banking collapse at a local bank or suspended trading sessions on our stock exchanges so far. As compared to many Pension Funds overseas, Government Pension Funds in India are in great shape ,mainly due to massive restrictions on speculative investments by pension funds.
Given India's large agrarian population that lives in rural areas; the government will have to continue to support Indian farmers with fertilizer subsidies and loan waivers, even as efforts to spread literacy and education across smaller towns continue.
Better to support a farmer than a lying banker any day!!!
India's massive and rapidly expanding middle class is crucial to India's long term prosperity, and its expansion is key to establishing a more equitable distribution of wealth. As a result, fuel subsidies and cuts in Indirect taxes (read: Service Tax and Excise taxes) are likely to continue to burden government finances.
I find it rather ironic that the very forces that criticized the Indian Government just a few years ago about its 'snail slow ' reforms in the Indian Banking sector, are now 'nationalizing' and pumping endless amounts of money into bankrupt and overleveraged banks.
Lastly, remember to take these comments with a pinch of salt, as S&P were one of the 'experts' that gave 'AAA' ratings to toxic Subprime CDO's & now defunct Mortgage Bond Insurers. These guys also refused to recognise the suicidal risks taken by large investment banks and financial institutions until it was too late.
As for India's continued loose fiscal policy, S&P better analyse the ever expanding US TARPS a little more closely.
They may find they've got more downgrading to do!!!!!!
More Links on the S&P negative outlook
S&P cuts ratings outlook on 12 Indian banks to negative
India's ratings may take a hit: S&P
Indian rupee weakens on S&P's outlook downgrade