S&P says one-in-three chance of India's rating downgrade in next two years

According to the ratings agency, the negative outlook signals at least a one-in-three likelihood of a downgrade of the sovereign rating on India to 'junk' from 'negative' within the next 24 months

Mumbai: There is a "one in three" chance of a downgrade of India's sovereign rating to junk status in the next two years, reports PTI quoting ratings agency Standard & Poor's (S&P).
"The negative outlook signals at least a one-in-three likelihood of a downgrade of the sovereign rating on India within the next 24 months," S&P analysts Takahira Ogawa and Elena Okorochenko said in a note.
On the upside, especially given the slew of reform measures carried out by the government in the past three weeks, the outlook can be revised upwards to stable if the government succeeds in reducing fiscal deficit, improve the investment climate and revives growth, S&P said.
Factors forcing a downgrade would be a drop in growth prospects, deterioration on the external front, worsening of the political climate and slow movement on fiscal reforms.
In June, the agency revised its outlook on the present BBB- rating to negative, which is one notch above junk grade and the lowest investment rating in among the BRIC economies.
It estimates the fiscal deficit to shoot up to 6% from the targeted 5.1% this fiscal, and growth to fall to 5.5% compared to the government's revised projection of 6.5%.
"Fiscal measures to lower deficits could include a more efficient use of fuel, fertiliser, and agricultural subsidies, or the implementation of a goods and service tax," it suggested. .
S&P has drawn attention to the risks on the political front like Mamata Banerjee-led Trinamool Congress quitting the ruling alliance, impending state elections and the general elections in 2014.
Considering that the government is in a minority, passage of amendments to allow additional foreign ownership in insurance and pension will be "more challenging", S&P said.
S&P had come out with a note asking for action from the political establishment and Prime Minister Manmohan Singh in June, when "policy paralysis" was a buzzword, to avoid being junked.
Last month, it welcomed the slew of reforms like allowing foreign holdings in multi-brand retail, aviation and media, but kept the outlook unchanged.
S&P's rivals Moody's and Fitch had also revised their respective outlooks on the sovereign rating to negative following the gloom on the economic front caused by factors both external and domestic.
The Finance Ministry had earlier said it would present the country's strengths to the rating agencies to avoid a downgrade.




5 years ago

High time rating agencies, or for that matter whosoever judges the performance of economies changed their parameters to factor in the inherent strengths and weaknesses of nations. Countries like India with huge resources including human resources and much less consumption needs as compared to ‘developed’ countries and nations which are permanently dependent on outside markets for sustenance and perennially building up capacities for unproductive purposes like war and journey to Mars are measured on the same scale. This is unacceptable. To counter this tendency, India should set up a purely research-based rating agency with expertise of international standard. Geographical area, population, resources, potential for development, sovereign debt and all should be factored in while making comparisons.

Maharashtra mulls policy to make slum dwellers pay housing cost

The new policy will be in line with that for mill workers, according to which, housing was provided to them at affordable rates on a no-profit-no-loss basis

Mumbai: Concerned over the loss the state exchequer may suffer due to allocating free houses to slum dwellers till 2000, the Maharashtra government is mulling over framing a policy whereby the slum dwellers will have to pay for the cost of housing, reports PTI.
"We had taken an unfortunate decision of giving free houses to slum dwellers. It is now difficult to uphold that plan. We are planning to bring some policy that will make these people (slum dwellers) pay for it (the housing)," Maharashtra Chief Minister Prithviraj Chavan said at an event.
The policy will be in line with that for mill workers, according to which, housing was provided to them at affordable rates on a no-profit-no-loss basis.
The Maharashtra Housing and Area Development Authority (MHADA) in June allotted low-cost houses to 6,925 mill workers at a subsidised price of Rs4.81 lakh to Rs9.35 lakh.
In January, the government had decided to provide free housing to all slum dwellers up to 2000.
"There are nearly 14.6 lakh slum dwellers in Mumbai. If we take the case of (slums in) Bandra-Kurla Complex (area), the cost of each slum is around Rs1 crore. It is this kind of value of the area and it is very unfortunate that we took a decision to provide free houses to them," he said.


Economy & Nation Exclusive
FDI hike in insurance - I: Who benefits?

Certainly, not the common man, unless it is accompanied by stringent regulations to protect the “aam aadmi” from exploitation

The central government has proposed to enhance foreign direct investment (FDI) in insurance to 49% in its second wave of reforms announced recently. At present foreign investment in private insurance companies is restricted to 26% of their capital, which is now proposed to be increased to 49% by passing an amendment to the Insurance Act in the ensuing session of Parliament.

Announcing this decision, finance minister P Chidambaram said “the benefits of this amendment to the insurance act will go to the private sector insurance companies, which require huge amounts of capital and that capital will be facilitated with the increase in foreign investment to 49%.”  He also clarified that this will not apply to public sector insurers like Life Insurance Corporation of India (LIC) and the five general insurance companies.

At present there are 44 private insurance companies authorized by the Insurance Regulatory and Development Authority (IRDA) operating in the country. These comprise of 23 life insurance, 17 general insurance and four health insurance companies, since the insurance sector was opened for private sector in the year 2000. These are all joint ventures between the Indian promoters who hold up to 76% and foreign insurance companies who hold up to 26% as mandated by the law.

The insurance business requires additional capital as it grows and this has to come from the promoters. If the Indian promoters are unable to contribute their share of the capital, they will not be able to grow. Foreign companies with deep pockets will be able to fill this gap, if they are allowed to invest up to 49% of the capital. It is estimated that the private insurers need about Rs60,000 crore of additional capital during the next five years. Therefore, the raising of FDI cap to 49% will come handy for the foreign partner to increase their stake in the company, without the local partner having to put matching capital in to the company. The foreign partner will be more than happy to increase its stake, as it will help it get a bigger share of the pie, and will also give it a larger role in running the company according to its ways, by virtue of a higher shareholding in the company. This will, therefore, be a boon to the foreign insurers to come to India in a big way.

Does this benefit the common man?

This change does not benefit the common man, as he is the target for all insurance companies, whether Indian or foreign, who try to extract maximum business from the gullible public, who are carried away by the sweet talk and tall promises made by the insurance salesmen. In fact they are concerned more about their own commission rather than the welfare of the insured. Insurance business is one where there is rampant mis-selling and the insurance companies go scot free because of a number of conditions included in the policy in small print, but never communicated in advance.

Our country has a low insurance density and every company selling the insurance feels that there is abundant scope to expand its operations and hence this proposal to increase FDI in insurance has been received with great applause by the industry. Only time alone will tell whether this irrational exuberance is justified considering the fact that there is political opposition to this move and this change requires approval of the Parliament.

If and when this proposal becomes a law there is bound to be a great demand from foreign companies to enter our country because of the abundant opportunity provided by the large population and the growing per capita income of our people. During the last twelve years, if over 40 foreign companies have entered our country as joint venture partners, with the increased FDI cap, we may expect another 100 companies to come within the next twelve years. Unfortunately, some of our people are carried away by the foreign names and brands, and that there is a perception among our people that foreign companies are better than the home-grown companies. But the fact is that foreign companies are as bad as or as good as local companies, and insurance business, whether run by Indians or by foreigners has the same objective, as in all business, of maximizing returns to the owners even at the cost of the insured.

How to protect “aam aadmi” from exploitation by the insurance companies?  

It is abundantly clear that mere hiking the FDI cap to 49% does not in any way benefit the common man, unless it is accompanied by stringent regulations to protect the “aam aadmi” from exploitation.  

 (The author is a financial analyst and writes for Moneylife under the pen-name ‘Gurpur’)




5 years ago

Insurance is a very PROFITABLE industry. For example, if you provide car insurance for 10,000 cars, how many of them will have serious accidents over one year? 100 cars? 200 cars? Just pocket the premiums and pay off the occassional accident payments. THE REAL REASON foreigners want to get into indian insurance industry is to pocket the profits and invest in their own country. Indians provide the premiums, foreigners cover the occassional accident (with fast service to make them look good), and loot the country.

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