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S&P retains India rating, rules out upgrade for two years

By PTI
03 November, 2016

Dashing the government’s hope of improved credit rating, S&P today retained India’s rating at ‘BBB-‘ with a stable outlook and ruled out any upgrade in two years, citing weak public finances. 

“The stable outlook balances India’s sound external position and inclusive policymaking tradition against the vulnerabilities stemming from its low per capita income and weak public finances,” S&P Global Ratings said in a statement.

“The outlook indicates that we do not expect to change our rating on India this year or next, based on our current set of forecasts,” it said. 

‘BBB-‘ indicates lowest investment grade rating. 

S&P said the upward pressure on the credit ratings could emerge if the government reforms markedly improve India’s fiscal performance and pushes down the level of net general government debt below 60 per cent of the GDP. 

Currently, government debt amounts to about 69 per cent of the GDP. 

S&P said improvements in policymaking continue to strengthen and flagged wide fiscal deficits, a heavy debt burden, and low per capita income as concerns. 

Downward pressure on the ratings could re-emerge if growth disappoints as a result of stalling reforms or if interest rate-setting monetary policy committee does not achieve inflation targets. 

A higher-than-expected deterioration in the nation’s external liquidity position could also put downward pressure on ratings, S&P added. 

The rating agency expects India’s economy to grow 7.9 per cent in 2016 with current account deficit at 1.4 per cent of the gross domestic product. It also expects the RBI to meet its inflation target of 5 per cent by March 2017. 

S&P had last in September 2014 upgraded India’s rating to stable from negative.

The ratings on India reflect the country’s sound external profile and improved monetary credibility, S&P said, adding the country’s strong democratic institutions and a free press promote policy stability and predictability. 

Lauding government efforts to build consensus to pass the long pending GST Bill, the ratings agency said it would bring in comprehensive tax reforms through the likely introduction in the first half of 2017. 

Other measures include strengthening the business climate, boosting labour market flexibility and reforming the energy sector, it said.

Govt protests

The government today slammed global rating agencies for not upgrading India’s sovereign rating despite a slew of reforms, saying they need to do some “introspection” as investors globally feel the country is “under-rated”.

Talking to reporters after S&P Global Ratings ruled out an upgrade for India for next 2 years, while retaining rating at lowest investment grade ‘BBB-‘, Economic affairs secretary Shaktikanta Das said the government will continue to adhere to the path of economic reforms and policies.

“If the rating has not been improved, it’s a matter which doesn’t bother us so much. It’s a question which calls for an introspection among those who do the rating,” Das said.

He said global investors feel India is highly “under- rated”.

“There is a disconnect, therefore, between what the investors are thinking of, what they have in their mind, and (what) the rating agencies are concluding. I think somewhere there is a disconnect,” he said.

Das cited various steps taken by the government in the last two years, including controlling inflation and structural reforms like GST and bankruptcy.

“If you compare the various factors which the report itself talk about, is there any other economy that equals this? So with all this, if there is no improvement, I think it’s a matter for the rating agency itself to put a question to itself and perhaps undertake a kind of introspection,” Das said.

The government will continue to adhere to the path of economic reforms as well as various policy initiatives and it’s for the rating agencies to take their own view, he added.

“I am not questioning anybody’s methodology now. It’s a detailed report we have to go through. They are independent rating agencies. And we value their comments…and attach a lot of importance to the comments and observations of all the rating agencies,” he said.

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S&P retains India rating, rules out upgrade for two years

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