India regains 'stable' credit outlook from S&P on Modi govt's reform moves

Written by ENS Economic Bureau | New Delhi | Updated: Sep 27 2014, 14:07pm hrs
Twenty-nine months after Standard & Poors (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.

The agency, however, has affirmed its BBB- long-term and A-3 short-term unsolicited sovereign credit rating on India.

Outlook revision reflects our view that Indias improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management, said S&P in its statement issued on Friday. While Indias outlook was downgraded to negative in April 2012, the upward revision comes four months after the NDA government was sworn into power and at a time when Prime Minister Narendra Modi is on a trip to the US.

The agency said that India has relatively less external debt and has improved its external liquidity position. It projected the external debt net of external assets to be at 6 per cent of current account receipts by the end of March 2015 and seemed satisfied with the central bank reserves which exceed public sector external debt.

Indias current account has improved in recent years after restrictions on gold imports and slower domestic investment demand. At the same time, the central bank rebuilt its foreign currency reserves to cover about 5.5 months of current account payments, said the agency adding that it expects the current account deficit to widen from its current low of 1.8 per cent of GDP by end of March 2015.

Reacting to the revision, finance secretary Arvind Mayaram said that the economy can grow at over 5.5 per cent in FY15 which the S&P has projected. We are satisfied that the agency has acknowledged the steps that government has taken to improve the economy and specially bring the investment climate and therefore the growth cycle back. We believe that growth this year should be in the region of 5.5-5.9 per cent, he said.