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FM makes light of ratings, says economy is 'picking up now'

Syed Firdaus Ashraf in Bombay

Finance Minister Yashwant Sinha today reacted strongly to reports of the Standard & Poor's downgradation of the Indian economy to BB from BB plus.

After a series of meetings with officials of the Securities and Exchange Board of India and the Unit Trust of India in Bombay, he told the media that the agency is being cautious after it failed to predict the Asian meltdown.

"The rating agencies have failed in their predictions about the southeast Asian countries. So they are being a little cautious in giving ratings to other economies. They are playing it safe because they don't want to take the blame in case the Indian economy fails."

When pointed out that this is the second time that India has been downgraded -- Moody's was the first rating agency to do it in June -- Sinha said, "The rating agencies have their duty. They follow their religion and whether it is right or not the market will determine."

After a pause, he went on. Despite Moody's downgrade, India mopped up $ 4 billion through State Bank of India's Resurgent India Bonds in September. "This itself proves that it is not necessary that the rating agencies are always right," he said.

S & P has said it downgraded India because of the bad fiscal deficit. To that, Sinha reiterated that his government will ensure that the fiscal deficit remains within the set parameters.

Will the government now push the reforms harder? "The government does not need to look into the entire reform process just because Moody's and S & P have downgraded the Indian economy. The reforms should and will continue because it is in the interest of the people of this country. And what should be done? We are looking into that from time to time."

He also clarified his earlier statement that the economy will start looking up from September. "I had mentioned repeatedly that the economic activity will pick up after the rainy season. During the rainy season there is not much economic activity. Traditionally it has been observed that the Indian economy always picks up after the rains. Later the construction activity starts. Then, the entire economy starts picking up."

"The whole problem arose because I mentioned September. People thought that by September 15, there will be a miracle and economy will start booming," he said. "And the economy is picking up now, I have reasons to believe so."

Sinha, however, refused to comment on Unit Trust of India's scheme. He said if any of the finance ministry officials comes to Bombay, that does not mean that they have come to discuss about the US-64 scheme. He refused to comment on anything about the UTI.

Interestingly, SEBI Chairman D R Mehta earlier said it was up to the finance ministry and Parliament to decide whether they wanted the US-64 scheme under the SEBI.

"The finance ministry will have to decided whether US-64 is a mutual fund or a saving scheme. If they decided it is a mutual fund then they will have to declare its net asset value and if it is a saving scheme then it is not necessary for them to declare its NAV," Mehta told Rediff On The NeT.

Mehta further said around 20 million investors are affected by the UTI crisis. A co-ordinated effort by the institutions, government agencies and the SEBI would have to be made to address the issue and revive the market sentiments, he observed.

The finance minister said ''appropriate measures'' will be taken to shore up the capital markets. About the divestment of the public sector units, he said, "In the case of the Container Corporation of India, a group of ministers has taken the view that they will disinvest in the domestic market and the modalities of that disinvestment procedure is being worked out.''

Asked when it will really come into effect, he evaded the question with a smile-laced retort: "Kya aap logo ko paisa lagana hai kya? (Do you -- the journalists -- intend to put your money in it?)

On the issue of allowing companies to buy back shares, he said, ''Wait and watch, it is under consideration.''

Conceding that inflation is rising, he pointed out that it was not high in the manufacturing sector. ''Prices of edible items are high because of the bad weather. I hope this year when the new crops come into the market, there will be an increase of foodgrains supply and that will result in a downtrend of prices of the eatables."

Addtional reportage: UNI