Even as the global firm S&P retained India's credit rating at BBB-, contrary to expectations of an upgrade, the firm has taken note of India's structural reforms.
Even as the global firm S&P retained India’s credit rating at BBB-, contrary to expectations of an upgrade, the firm has taken note of India’s structural reforms. In its commentary, S&P took a favourable view of Narendra Modi administration’s economic reforms 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. The firm has also pointed out certain parameters, which, if improved, would put upward pressure on the ratings. We take a look at three key reforms undertaken by Narendra Modi-led government which got a thumbs up from Standard & Poor’s.
PSU Bank Recapitalisation
After the Narendra Modi-led government announced a mega plan of Rs 2.11 lakh crore to recapitalise the stressed public sector banks last month, S&P recognized that the move will help to revive growth. “The medium-term outlook for growth remains favorable, based on private consumption, an ambitious public infrastructure investment program, and a bank restructuring plan that should help revive investment,” said S&P’s report on India. Further, S&P says, “We anticipate that growth will be supported by the planned recapitalization of state-owned banks, which is likely to spur on new lending within the economy.
The global firm believes that introduction of GST should also spur up the economic activity in the country. “The removal of barriers to domestic trade tied to the imposition of GST should also support GDP growth,” said the firm. In a recent commentary S&P had appreciated India’s efforts regarding 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.
The global firm also lauded the administrations efforts surrounding infrastructure development. As part of country’s biggest highway development plan, last month, the government approved the Phase 1 of Bharatmala project to develop and expand approximately 40,000 km of roads at an investment of Rs 3.5 lakh crore by 2022. “Public-sector-led infrastructure investment, notably in the road sector, will also stimulate economic activity, while private consumption will remain robust,” S&P observed in the report.