After global credit rating agency Moody’s upgraded India’s sovereign rating to Baa2 from Baa3 last week, all eyes will be on Standard & Poor’s (S&P) India review expected today. Interestingly, while the Moody’s Investor Service 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-” 10 years ago in 2007. S&P has since retained India’s rating at that level, citing the country’s low GDP per capita and weak public finances. Last year, the global firm had said, “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.” Further, the credit rating agency had 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. Currently, India’s general government debt amounts to about 68% of the GDP.
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. Earlier, the government had been critical of the rating agency’s methodologies. In May 2017, Chief Economic Advisor Arvind Subramanian had said, “The ratings agencies have been inconsistent in their treatment of China and India. Given this record — what we call Poor Standards — my question is: why do we take these rating analysts seriously at all?”
“The S&P is coming out with its review, we are bracing for both a positive and a negative outcome of their assessment,” a senior finance ministry official told the Indian Express. After Moody’s credit rating upgrade, Standard & Poor’s Financial Services declined to comment last week, but maintained that India has a weak fiscal position which needs to be addressed, according to ET Now. A few top market voices had also questioned the timing of Moody’s India credit rating upgrade, Reuters reported last week.
“The timing is little dicey for the upgrade given that there are a lot of concerns over government’s fiscal discipline,” foreign bank dealer had said last week, adding he did not expect other agencies to follow Moody’s. While there may be a lot of uncertainties, whether the global firm upgrades India’s sovereign rating, remains to be seen.