Standard and Poor recently lowered the sovereign rating of USA to AA+ from AAA. This has impacted in the world wide markets. All major Stock Exchanges including that of the Asian countries like India have been affected. The President Obama tried to defend his country against the lowering of the rating by S&P. But it has created little effect on the investors.
In India, the government and economic think tanks are trying very hard to tame inflation. But the inflation rate is nearing the double digit at a rapid pace. The Reserve Bank has tightened the policy rate beyond the normal limits to tame inflation. Unfortunately it may have negative impact on the Indian economy since the industrial sector may be affected. We Indians can however be optimistic that the measures by the Reserve Bank may bear fruit.
There is a silver lining for Indians from the part of S&P. They have maintained the sovereign debt rating of India at BBB. The rating means that the economy is stable. But they indicated that the rating may go down in the long run if the government fails to stimulate its economy.
We Indians are somewhat safe though loose fiscal policy and the government's inability to carry forward economic reforms could have implications in the medium term. India has been struggling to deal with inflation, which is nearing the double-digit mark. Headline inflation stood at 9.44 per cent in June, while food inflation was 9.90 per cent for the week ended July 30. On the fiscal side, rising prices of crude oil and high food and fertilizer subsidies, coupled with the inability of the government to raise Rs 40,000 crore from the divestment of equity in public sector companies during 2010-11, could create problems. However the agency maintained that future government initiatives to significantly reduce subsidies for fertilizers, foods and fuels would be a positive factor in improving the expenditure structure of the budget and reducing the negative influence of potential external shocks on India's fiscal position