Country cites fiscal discipline, high growth and macro stability despite risks from weak rupee, high oil prices
India on Thursday made a strong pitch to Standard & Poor’s (S&P) for a rating upgrade, citing improving economic growth prospects, fiscal discipline, stabilisation of the GST regime and broader macroeconomic stability despite elevated oil prices and a depreciating rupee.
S&P has kept India’s sovereign rating unchanged at the lowest investment grade of “BBB-” since January 2007, citing its sizable fiscal deficit, low per capita income and high government debt levels. It has maintained the stable outlook for the country.
In their meeting with S&P executives, senior finance ministry officials, led by economic affairs secretary Subhash Chandra Garg, are learnt to have assuaged any concerns about the impact of elevated oil prices and the weakening rupee on the economy. A source said officials told S&P executives that the Centre would stick to the path of fiscal consolidation. They also conveyed that the high debt-to-GDP ratio is a long-term consideration and should not be an immediate concern for rating upgrade. Currently, the ratio stands at around 68.5%. The government intends to bring it down to 60% of the GDP by 2024-25.
The Centre aims to reduce the fiscal deficit to 3.3% this fiscal, to 3.1% in 2019-20 and 3% by 2020-21. In 2017-18, it had contained fiscal deficit at 3.5% despite the fact that GST revenue was collected for only 11 months that year. India will remain the world’s fastest-growing economy, with the International Monetary Fund having projected 7.3% GDP growth for 2018-19 and 7.5% the year after, against 6.7% in 2017-18.
The finance ministry has also said the GST regime has stabilised and revenue collection has already started to show buoyancy, which will only pick up in coming months. Even the bad debt-laden public sector banks have left the worst behind with operating profit having improved 11.5% quarter-on-quarter in the three months through June.
The meeting took place at a time when a rise in global oil prices and the rupee depreciation have threatened to inflate India’s import bill and further worsen the trade deficit, which already touched a 62-month peak in July. A global trade war, initiated by the Trump administration, has further jeopardised trade growth prospects.
Even Moody’s, which last year upgraded India’s sovereign rating by a notch to ‘Baa2’ after a long gap of 14 years, said on Wednesday that there were risks of the fiscal deficit breaching the 3.3% budgeted target for the current fiscal, thanks to higher oil prices. Moody’s also expected the CAD to worsen. Like S&P, Fitch has a ‘BBB-‘, the lowest investment grade sovereign rating, on India with a stable outlook. Fitch has maintained the same rating for the country for over 11 years now.