S&P says India’s fiscal deficit to remain as expected, economic growth to be robust over 2 years

By: | Updated: November 24, 2017 5:57 PM

china, china debt rating, debt rating of china, standard & poor's debt ratingsS&P, which downgraded China?s debt from AA-minus to A- plus, is the second major credit ratings agency to slash the Asian giant?s rating after Moody?s made the same decision in May. (Image: Reuters)

While maintaining status quo on India’s sovereign credit rating at BBB- and outlook ‘stable’, S&P said that fiscal deficit will remain in line with their expectations and the economic growth of the country is set to grow robustly over the next two years. The rating agency even indicated at an upgrade in future if reforms by Narendra Modi government markedly improve fiscal conditions.

S&P said that stable outlook reflects that India will maintain sound external account position, while sizeable fiscal deficit, high government debt, low per capita income detracted from sovereign credit profile. Moody’s upgraded India’s sovereign rating to Baa2 from Baa3 last week, after a long gap of 14 years.

“Despite two-quarters of weaker-than-expected growth, India’s economy is forecast to grow robustly in 2018-2020 and foreign exchange reserves will continue to rise,” S&P said, adding that there could be a downward pressure on the ratings if GDP growth disappoints.

S&P had in October 2017 said India needed to improve its fiscal position for a rating upgrade. It kept India’s sovereign rating unchanged at the lowest investment grade with a stable outlook.

S&P, in January 2007, rated India at BBB-, the lowest investment grade rating for bonds, and gave an outlook of ‘stable’. It changed the outlook to negative in 2009 and raised it to stable in 2010.

Moody’s last week said India was poised for fast growth because of wide-ranging economic and institutional reforms by Narendra Modi’s government.

Sovereign credit ratings are a barometer of a country’s credit profile and regulatory climate. A favourable rating helps governments and companies raise capital in global financial markets. Also, institutional investors rely on ratings for an indication of a country’s socio-political environment before making investment decisions. A report by Fitch Ratings is now awaited.

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?”

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