Trade Chambers Play Down S & P Concerns

The country's apex industry chambers have played down the downgrading of India's currency rating by Standard & Poor's (S&P).

The international agency had lowered the country's long-term local currency sovereign credit rating to BBB- from BBB.

The Confederation of Indian Industry (CII) said the rating was based on an incomplete picture of the economy.

While the major reasons given for the downgrade are the rising fiscal deficit and lack of progress on PSU privatisation, the agency has ignored many positive aspects of the economy, a CII release issued here today said.

To begin with, the CII said, a growth of 5.2 per cent amid the current global economic slowdown puts India as the second fastest-growing economy in Asia and among the ten fastest-growing economies of the world.

Further, with foreign exchange reserves of $43 billion, the country is in a comfortable position on the external front.

With little short-term dollar-denominated debts, there is no fear of any pressure on the exchange rate.

The chamber said the downgrade need not be given excessive importance as it will not have any medium- or long-term negative impact on the economy or significantly alter the cost of foreign borrowing.

The Federation of Indian Chambers of Commerce & Industry said the economy has slowed down and, as a result, tax collections have not been on target forcing the government to borrow more.

"The downward revision of India's credit rating may have reflected these trends," a Ficci release said adding: "India's external sector is not an area of immediate concern. Lower trade deficit and the continued inflow of foreign investments causes a comfortable balance of payments position."

However, the Associated Chambers of Commerce and Industry said that the competitive position of India may be disturbed by adversial cross-currency behaviour and downgrading of currency rating by institutions such as Moody's Investor Services and S&P's.

The chamber's economic affairs committee chairman, S S Bhandare said the calculation on five-country reer basis, the rupee is seen to be over-valued by around 5 per cent.