Twenty-nine months after Standard & Poor?s (S&P) lowered its outlook on India from ‘stable’ to ‘negative’ suggesting one-in-three likelihood of a downgrade, the rating agency on Friday revised it back to ‘stable’ citing “improved political setting” which offers “a conducive environment for reforms”.
Here’s all you wanted to know about the credit rating outlook:
* Standard & Poor?s, while raising India?s credit rating outlook to
?stable?, cautioned that threats to outlook remain.
* Currently India is rated at ?BBB-/A-3?, which corresponds to the lowest investment rating, a notch above ?junk? status.
* In credit rating parlance, a negative outlook means the country?s weak fiscal position will constrain the government?s policy measures and may lead to a lower rating. A stable outlook shows that the country?s fiscal consolidation efforts will restore the government?s policy flexibility.
* However, another global rating agency, Fitch, has said that the decision to de-allocate coal blocks will impact the credit ratings of power and steel companies negatively.
* At present, India is rated as BBB- with stable outlook by Fitch and Baa3 by Moody?s.
* Positives
– Improved political setting has created a conducive environment for reforms
– Strong external profile with little external debt and sufficient reserves with RBI to finance borrowings
– Low current account deficit due to restriction on gold and low domestic investments
Constraints
* Low per capita GDP of $1,550 narrows the tax and base considerably
* Weak public finance with large fiscal deficit and extensive subsidy bills
* 90% of general government debt is rupee denominated, further constraining fiscal space