S&P warns India yet again

Ever since the government opened the floodgates of reforms, stock market investors rejoiced. Particularly the FIIs. They are now hoping for more 'announcements'. But it seems the rating agencies are once-bitten-twice-shy. They are no longer willing to be pacified by reforms on paper. Especially since the political consensus to see the reforms implemented is extremely weak. Moreover, it could be much longer than anticipated before the reforms actually facilitate higher GDP growth. Plus there are problems of inflation, fiscal deficit and corruption. These are not going away anytime soon.

As a result, rating agency Standard & Poor's has once again issued warning regarding India's sovereign rating. The threat this time is to relegate India's rating to 'junk'. This has mostly to do with the doubts about execution of reforms. S&P however promises a better rating if reforms get executed well. That is with improvement in investment climate. Particularly, if foreign direct investment in various sectors is implemented successfully.

Now given that global rating agencies have very little reputation of 'credible ratings', the threats need not panic investors. Having said that, any premature celebrations about the government's reformist attitude are also uncalled for.