Very often ratings are a good guide to wade one’s way through a complicated world. They let lenders know something about the safety of their money while borrowers are constantly made aware of the dangers of gravity.
The world, however, is at times too complicated even for ratings. Standard and Poor’s (S&P) affirmation of a BBB- and A-3 rating for long-term and short-term sovereign credit rating for India, respectively, tells this story very clearly.
S&P noted all the right noises that have been made in the Budget 2010 on fiscal consolidation. The A-3 part of the rating is consonant with this story.The BBB-, however, tells a different story. S&P is less confident about India’s ability to keep long-term fiscal policy in line with what is expected from an economy of its size. There is no need to indulge in econometric gymnastics to arrive at this conclusion. When India’s galloping debt and high interest payments are seen along with the proclivity of its policymakers for expensive social welfare schemes, this scepticism makes very good sense.