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NEW DELHI, Sept. 20

THE apex chambers of commerce and industry today came out strongly against the decision of Standard & Poor's to downgrade India's rupee debt rating from investment grade to `junk' and claimed that the rating agency's decision was driven by short-term factors such as "temporary deferment" in disinvestment of some state-owned public sector undertakings (PSUs).

Severely criticising the decision, the President of the Confederation of Indian Industry (CII), Mr Ashok Soota, said that "this is a knee-jerk reaction of S&P to the temporary deferment in divestment of oil PSUs" and added that the S&P downgrade was "uncalled for."

The CII President said that there was absolutely no "macro-economic rationale" for the downgrade. "We are comfortable in both the macro-economic and foreign sector front. Also, India has never reneged on its domestic or foreign liabilities," Mr Soota said.

On the impact on corporate paper, Mr Soota said that foreign investors cared much more about the details of a company than about the sovereign ratings.

At the same time, the chamber felt that the Prime Minister should clearly say that the disinvestment programme was not going to be derailed and that it would meet the Budget targets.

Unfortunate: Assocham

Reacting to the downgrade, the President of the Associated Chambers of Commerce and Industry of India (Assocham), Mr K.K. Nohria, said that the rating was unfortunate, coming as it did at a time when the economy had started recovering and signs of fresh investments were becoming visible.

He felt that the downgrade "will impact" the flow of investment and urged the Prime Minister to implement the agenda already adopted for privatisation. Mr Nohria emphasised the need for consensus among political parties, especially among the partners of the National Democratic Alliance and said that any derailment of the disinvestments process would have far-reaching consequences, including the strengthening of the hands of those opposed it.

"The downgrading of Indian local currency sovereign rating to below investment grade is only a cosmetic move which will not affect our international standing, since no foreigner operates in local currency debt," Mr R.S. Lodha, President, Federation of Indian Chambers of Commerce and Industry (FICCI), said.

He further said that the S&P sovereign rating was supposed to reflect the sovereign Government's ability and willingness to service its debt fully and on time. "Data from India reveals that our interest payment burden as a percentage of GDP has gone down from 4.76 per cent of GDP in 2000-01 to 4.66 per cent in 2001-02. It is notable that the total outstanding liabilities of the Central Government had remained below 60 per cent of GDP over several years".

"So there is no negative trigger for S&P to downgrade local currency sovereign rating to below investment grade. Therefore, this downgrade seems to be sending a political message rather than giving an objective credit rating," Mr Lodha said.

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