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India worst of the lot in deficit, debt

BS Banking Bureau in Mumbai

With the downgrading of the country's long-term local currency rating to BB+, not only is India in the company of Costa Rica, El Salvador, Guatemala, Kazakhstan and Peru in the downmarket BB+ club, but it is also at the bottom of that heap.

S&P also says that the outlook for India continues to be negative, despite the downgrade. Costa Rica, El Salvador, Guatemala and Peru all have stable outlooks, while the outlook for Kazakhstan is positive.

For most of us in India, the thought of being teamed up with the likes of Guatemala seems rather far-fetched. No wonder some commentators suspect that S&P's rap on the knuckles is merely another way of putting some pressure on the government to continue with its reforms programme.

Does India have anything in common with these countries? Together with its ratings, S&P also publishes a list of its indicators on the basis of which sovereign ratings are made.

According to this data, India's fiscal deficit in 2002 (Centre plus states) is estimated at 9.8 per cent of the gross domestic product (GDP), while the average fiscal deficit between the years 1998 and 2002 is 9.3 per cent.

The comparable figures for Costa Rica are 3.5 per cent for 1998-2002 and 4.3 per cent for 2002; Kazakhstan 4 per cent and 1.3 per cent, El Salvador 2.7 per cent and 3.4 per cent, Guatemala 1.9 per cent and 1.7 per cent; Peru 1.8 per cent and 2.1 per cent.

Only Lebanon and Turkey, with fiscal deficits at 16.2 per cent and 18.4 per cent of their GDP, respectively, have a higher fiscal deficit to GDP ratio than India, and their long-term local currency ratings are B-. Mongolia, which has a fiscal deficit to GDP ratio of 7.2 for 2002, is rated B.

India fares pretty badly on the parameter of net debt as a percentage of GDP too. For 2002, this is estimated at 48 per cent, and the average percentage for the years 1998-2002 is 40 per cent.

Costa Rica is in a similar position with the percentage for 2002 being 48 per cent and the 1998-2002 average being 47 per cent. The figures for El Salvador are 23 per cent and 26 per cent, Guatemala 14 per cent and 15 per cent, Kazakhstan 13 per cent and 12 per cent, and Peru 33 per cent and 35 per cent.

Many countries, however, have higher net debt to GDP ratios than India.

These include Austria, rated AAA (net debt/GDP at 54 per cent), Belgium, rated AA+ (98 per cent), Italy at AA (94 per cent) and Japan, rated AA- (74 per cent), Egypt, rated BBB (87 per cent).

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