he recent warning by Standard & Poor's (S&P) of a future downgrade of India to junk status is motivated by the urgent need to divert funds worldwide from emerging markets back to the European Union, claim key players in the London and Singapore financial markets off the record. "Should Greece go under, and this is what its fundamentals indicate, the resultant domino effect will finally claim France, which is incapable of implementing the reform measures needed for fiscal stability", an analyst said. Hence, he claims, "the need to divert funds back into the EU" from emerging markets such as India. An analyst in Singapore estimated that "more than $30 billion deposits would almost immediately flow back to developed markets from India should there be a ratings downgrade". He warned that "although the fundamentals in India warrant an upgrade rather than a downgrade, the interest of the agencies is their own markets, and to try and secure these, they are ready to sacrifice India". Those in touch with the rating agencies refute this by saying that no such trade-off exists, and that "our ratings are fair". Given their sorry record during the 2007-09 financial crisis and their persistent refusal to admit that Portugal, Ireland, Greece and Spain (otherwise known as the PIGS) are bankrupt, there are not too many takers for such an endorsement.

Investors, many in developing markets in South Asia, East Asia and West Asia, have lost close to US$4.2 trillion during 2007-09 "because they relied on the misleading and wholly inaccurate rankings given by these agencies on the financial instruments they held," a Singapore banker pointed out, adding that "investors in Asia have learnt nothing from that crisis. They continue to trust their savings with the same western financial conglomerates that caused them to make such huge losses just a few years ago."

A London analyst at a merchant bank warned that "the agencies know that telling the truth to Asian investors about the situation in Europe will cause panic, and are hence once again giving certificates of health even to those countries in the EU that they know are flat broke".

A Singapore analyst contrasted the "over-optimistic rankings" given to entities across both sides of the Atlantic with the more pessimistic evaluation given to India, and said that the reason for this "is to ensure a higher return for investors in North America and the EU out of India". He pointed out that "a downgrade would sharply increase the returns earned by those investors remaining in India", most of whom channel their moneys through the same financial institutions that "have a vested interest in higher returns". This allegation is denied by sources within top US and EU financial firms as "figments of a hyperactive imagination". What is, however, clear is that these entities are making a lot of profits out of India because of the foreign fund-friendly policies adopted by Team Manmohan.

An economist at a Singapore financial enterprise pointed out that "investible cash is mostly there in the Gulf Cooperation Council (GCC) and in China, Japan and Taiwan", and wondered why India was "ignoring these markets and continuing to look to the West for deliverance".

It may be mentioned that intelligence agencies within Government of India remain opposed to direct FDI from China and in several instances from the GCC. "This suits the financial conglomerates in the West, who want any funds flowing to India to be routed through them, for them to increase their profits and to regulate the flow of cash to India," a London banker said.

While the rating agencies deny suggestions of bias, others in the industry warn that the threats of a downgrade are ploys to divert money to collapsing European markets and to increase the already high returns from placing funds in India.