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Will India get junked soon?

Jul 9, 2009

S&P worried over India's rising deficit
The Finance Minister's 'no comments' in the recent budget on how he will be lowering India's fiscal deficit in the years to come has made rating agency S&P quite concerned over the country's outlook. As a matter of fact, as the FM disclosed during his budget speech, India's fiscal deficit (excess of government expenditure over its income) is likely to touch a level 6.8% of GDP by the end of FY10. Moreover, on including off-budget items such as fertiliser and oil bonds, the deficit figure will stand at about 12% of GDP. "We continue to believe that such high levels of government deficits are unsustainable in the medium term, although we weren't surprised by the number itself," said S&P in a statement.

Currently, the agency has given a rating of BBB- which is one step away from the 'junk' status. Any downward revision on this rating could lower India's appeal with foreign investors (which we are anyways not complaining much about!). However, S&P has added that it expects its India outlook to stabilise at the current levels provided the country manages to reduce its deficit burden in the medium term. This is also keeping in mind that a faster than expected economic recovery would help India to achieve faster fiscal consolidation through higher revenue growth.

Auto numbers - India good, China fabulous
India's 14% YoY growth in total auto sales for the month of June 2009 paints a rosy picture when compared to the ailing auto markets of developed nations. As per the Society of Indian Automobile Manufacturers (SIAM), the growth in vehicle sales has been on the back of new model launches, and cheaper and easier financing options. Passenger vehicle sales stood at 140,000 units during the said month, recording a growth of 8% YoY. On the other hand, two-wheeler sales stood at almost 707,000 units and witnessed a growth of 17% YoY.

While these numbers can be considered good, wait till you read the growth rates China is clocking in its auto industry. As per Bloomberg, China's passenger vehicle sales stood at almost 873,000 units in June, a whopping growth of 48% YoY. Total auto numbers for the month stood at 1.1 m units. This is believed to be the biggest jump in auto numbers in over three years. Reasons such as tax cuts and government subsidies have been attributed for the same. It may be noted that China is now the world's biggest auto market (a feat it achieved during the first half of 2009), surpassing the US's 63-year reign.

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