Coalition government, emerging uncertainty and Rating agency

The Indian government bonds currently enjoy a status of BBB, which means that it is in the last category of investible status.

A notch below namely BB+ means that our bonds have reached a junk status.

One of the rating agencies, namely “Standard & Poor”, whose opinion is considered sacrosanct, made the following statement on Nov 7, 2013 and I quote:

“The negative outlook (Indian Economy) indicates that we may lower the rating to speculative grade next year if the government that takes office after the election does not appear capable of reversing India’s economic growth…….

We expect to review the rating on India after the next general elections when the new government has announced its policy agenda.”

The current economic scenario is somewhat dicey. The 4.8% budget deficit to the GDP that was promised by our finance minister is currently being threatened.

We have already reached 94% of the targeted deficit in the first nine months.

The chances are we will cross the 4.8% target almost certainly and may probably end up with 6% of GDP.

The rating agency will definitely take a negative view of this.

India needs bold action.

We need a plan to take tough steps to control a number of things like:

—     The double digit CPI

—             Increasing bank lending rates

—             Increasing NPA that is threatening the banking system

—             Increased overseas borrowing already hitting 400.3 billion against a national reserve of 290 billion.

Coalition govt with their own common agenda may not be in a position to address these problems.

We need a govt that will act with conviction.

Even if it is a coalition govt, there must be a solidarity in addressing these issues

Finally, India doesn’t deserve to be a “Banana Republic”

Will the politicians rise up to the occasion? Let us wait and see.


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