The saving grace is that the rating revision is not likely to have any material impact. First, Moody's had already lowered India's rating, and second, the conditions prevailing in the international financial markets today are not conducive to investment in emerging market debt. The price of Indian paper is ruling at very high levels, so much so that any borrowing at those levels is effectively precluded. The flight to safety has resulted in an indiscriminate aversion to emerging market debt, and even financiallysound Indian companies have been penalised. Under these circumstances, the S&P downgrade will not effect any change in the credit avenues available to Indian companies.

Events in the world economy have been moving too fast for the rating agencies, and they are desperately afraid of losing their credibility. But they need to re-think their position on the old orthodoxies. In India, the cause for concern is not so much the quantum as the quality of the fiscal deficit. The way out will have to be, not through " a renewed commitment to trade liberalisation" but through selling India as a paying destination for foreign direct investment. The country's large market and relative insulation should be plus points for the foreign direct investor. S&P has rightly identified attracting foreign investment and privatisation as two strategies which will help remove the constraints to growth.