Rating agency’s representatives meet RBI, Niti Aayog and finmin officials to gather feedback from policymakers
Ahead of its annual rating review for the country, global rating agency Standard & Poor’s (S&P) has flagged India’s weak public finances and low per capita income compared to similarly-rated economies, dashing hopes of a sovereign rating upgrade for the country in the near future.
S&P has kept India’s sovereign rating unchanged at the lowest investment grade, ‘BBB-’, since 2007, citing the country’s sizeable fiscal deficit, high general government debt levels and low per capita income.
S&P representatives met officials of the Reserve Bank of India (RBI) on Tuesday, Niti Aayog on Wednesday and finance ministry on Thursday to gather feedback from policymakers on macro economic indicators and the latest developments in the economy, sources told FE.
S&P representatives are learnt to have pointed out in these meetings that India’s general government debt and fiscal deficit are higher compared to similarly rated economies. In a post-Budget commentary in July, S&P forecast the general government’s net indebtedness at 67.1% of GDP by end-FY20, against a projected fiscal deficit of 6.7% of GDP. General government deficits will remain elevated despite the marginal decline at the central government level to 3.3% of GDP this fiscal year projected in the budget, it had said.
S&P refused to join its peer Moody’s which raised the rating for the country by a notch from Baa3 (lowest investment grade) to Baa2 in November 2017, after a long gap of 14-years, in recognition of reforms undertaken in recent years.
In 2017, the rating agency had cited the vulnerabilities stemming from India’s low per capita income ($1,700), which is unlikely to rise sharply in near future due to the sheer size of the population.
The then chief economic adviser Arvind Subramanian had criticised S&P in the 2016-17 Economic Survey when he referred to the “poor standards” by rating agencies in assessing the economic performance of India and China. China’s ratings are way above India’s, at A+. China’s per capita GDP was $8,123 in 2016.
China’s economic growth is projected to slowdown in the medium term while India’s growth rate is projected to grow at a faster paced due to various structural reforms. However, official data showed last week that India’s real gross domestic product (GDP) growth slumped to a 25-quarter low of 5% in Q1FY20, amplifying fears of a prolonged economic slowdown.