Global rating agency Standard & Poor’s (S&P) will announce the outcome of its sovereign rating review for India on Friday, exactly a week after Moody’s raised its rating for the country by a notch to Baa2 from the lowest investment-grade ranking of Baa3. While the Moody’s upgrade came after a long gap of 14 years, S&P had last upgraded India’s rating from junk grade “BB+” to lowest investment grade “BBB-” on January 30, 2007, and has since retained it at that level, citing the country’s low GDP per capita and weak public finances. S&P had said in November last year that India’s sound external position and inclusive policymaking tradition balanced against the vulnerabilities stemming from its low per capita income ($1,700) and weak public finances. “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 had said, while reaffirming the extant rating.
The agency, however, added that an upgrade could emerge if the government reforms markedly improved India’s fiscal performance and pushed down the level of net general government debt below 60% of the GDP. India’s general government debt amounts to about 68% of the GDP at present. India’s policymakers have been critical of the rating agencies methodology, which they thought deprived India of well-deserved upgrades based on its reforms zeal, good track record on servicing debts and macroeconomic fundamentals. Despite India’s strong growth trajectory and a commitment to fiscal discipline, India is deemed by these agencies as an outlier among emerging-market “peers” for its higher fiscal deficit and debt ratios, the Economic Survey 2016-17 noted. Also, the survey said the inclusion of a slow-moving variable like per capita income has unfairly impeded the upgrade of low-middle-income countries. China’s ratings are way above India’s despite despite S&P recently cutting China’s long-term sovereign credit ratings by one notch to A+ from AA-.
In a recent commentary S&P had appreciated India’s structural reforms such as GST. “The government’s proposed capital infusions step will help to address the banks’ bloated balance sheets, which are partly constraining the economy,” said S&P Global Ratings credit analyst Amit Pandey. Even as India’s economic growth moderated to 7.1% in FY17 and likely to be below 7% this year, India’s current account deficit has declined to 0.7% in FY17 from 1.1% in FY16 while the general government fiscal deficit (Centre + states) declined to 6.5% in FY17 from 7.5% in the previous year. “Logically from all perspectives, India deserves to get a credit upgrade from S&P also,” former economic affairs secretary Shaktikanta Das said.