S&P credit rating unchanged: This is what India must do if it wants an upgrade

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Updated: November 25, 2017 10:57:06 AM

While S&P has retained India's sovereign rating at BBB-, the global firm has pointed out certain parameters, which, if improved, may lead to an upgrade.

S&P noted that there will be an upward pressure on the ratings if the India?s net government debt reduces. (Image: Reuters)

After Moody’s upgraded India’s sovereign rating last week, raising hopes that Standard & Poor’s will follow suit, S&P retained its BBB- rating on rating with a stable outlook. While S&P has retained India’s sovereign rating, the global firm has pointed out certain parameters which, if India improves, may lead to an upgrade. In its commentary, S&P took a favourable view of Narendra Modi administration’s economic reforms undertaken and lauded India’s fiscal consolidation drive. Notably, 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.” We take a look at what India needs to do to get a S&P rating upgrade.

S&P noted that there will be an upward pressure on the ratings if the net government debt reduces. Even last year, the credit rating agency had said 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.

Further, S&P says that there would be an upward pressure on ratings if reforms markedly improve fiscal out-turns. Notably, S&P had appreciated India’s structural reforms such as GST in a recent commentary on India. “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.

India should look to improve on these parameters not merely for an upgrade, but also to maintain the current rating and outlook. S&P notes that there would be a downward pressure if growth disappoints, and fiscal deficit rises significantly. last week, after Moody’s Investor Service upgraded India, it also said that a material deterioration in fiscal metrics and the outlook for general government fiscal consolidation would put negative pressure on the rating. “The rating could also face downward pressure if the health of the banking system deteriorated significantly or external vulnerability increased sharply,” noted Moody’s in its report.

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