Downgrading of Debt Rating of Us: Impact on India

Topics: Currency, Debt, Central bank Pages: 2 (312 words) Published: February 17, 2013
“Downgrading of debt rating of US: Impact on India”

Credit rating of a government is a measure of the country’s vulnerability to default risk. Agencies like Standard and Poor, Fitch and Moody’s scrutinize country's debt history and macroeconomic strength such as the amount of GDP per capita, outstanding debt, growth in the economy, inflation and debt repayment ability to determine the sovereign credit rating over the time period. US had maintained a credit rating of AAA since 1941, but on April 18 2011 S&P downgraded it to AA+ because of fiscal deficit. In this report, we shall study the impact of this downgrade on Indian economy focusing primarily on the following points: Impact on Capital Markets, especially Indian stock markets

The downgrade has adversely affected the US stock market. We plan to determine its cascading effect on Capital Markets worldwide in general and Indian Markets in particular. Impact on India’s exports and imports

We plan to study how the degradation affects Indian currency valuation and thereby its impact on Indian imports and exports. One of the major imports, crude oil will be discussed in detail. India’s exposure to US Debt and strategy to mitigate it

Currently India’s exposure to US debts is about $41 billion as part of foreign exchange reserves and dollar holdings. We shall discuss the steps taken by Reserve Bank of India to regulate buying of US treasury bonds and possibilities of other alternative buying like Chinese Government bonds, Gold etc. Impact on Indian IT industry

Service sector contributes about 55% to India’s GDP. Indian IT/ITES companies, which constitute a major part of this sector, derive a majority of their revenue from the US. We plan to study how degrade will impact them due to foreign exchange rates and reduced demand for such services.

Group-10 Section B
U111070, U111080, U111090, U111100, U111110, U111120
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