‘Warning signal’ to greenfield projects

‘S&P sovereign downgrade will affect India’s image’

Our Bureau

New Delhi, Aug 8: Former finance ministers (FM), Mr P Chidambaram and Dr Manmohan Singh have warned that Standard & Poor’s (S&P) downgrade of India will have an adverse bearing on India’s image as an investment destination. They see it as a “warning signal” in particular on the score of green field projects.

P Chidambaram	Manmohan Singh

Speaking separately to The Financial Express, both former FMs endorsed assessments that the effect of the downgrade of sovereign credit risk ratings would not be much in tangible terms, say, higher cost of capital. But they warned that government would do well to take note of the effect it will have “in perceptual terms” about India as a stop for global investment and new fund flows.

In particular, Dr Singh and Mr Chidambaram took note of the downgrade of S&P’s “outlook” on India “from stable to negative”.

Dr Singh emphasised that he “did not wish to send any panic signals, but it is clear that if we wish to live in a global world, expectations and economic perceptions must be taken note off”.

On this count, Mr Singh said: “S&P’s worries about India’s debt as a percentage of GDP, and more importantly, as a percentage of annual revenues of the Centre and the states is something I am worried about. It is not a happy development. It is now up to the Centre and the states to explain.”

Mr Chidambaram saw the downgrade as a negative trend and did not see merit in the finance ministry’s argument thus far that it reflected “haste”, particularly because there is no drop in the stock markets. “It does not work this way,” the former FM warned.

“We have today a bleak outlook on greenfield projects and that only get worse with this downgrade,” he said.

Mr Chidambaram disagreed with the ministry’s optimism that other rating agencies “will take an independent view” and will not downgrade India in a chain reaction to S&P.

“There is basically only one other agency (Moody’s) and both agencies tend to react in tandem. Any assurance on their part (some weeks back a Moody’s analyst had said that India’s rating is not up for a review for now) can change at any time,” he said.

Dr Singh was more hesitant to commit on a likely change in Moody’s outlook on India, saying, he is “out of touch on this point”. His comment on the S&P downgrade aimed at using it “as a warning signal”.

“The budget has ended up being merely a series of announcements with very little action to back it up,” Dr Singh said. “Reform is not merely about announcements. It is as much about implementation,” he said.