Policies, not party will impact India?s sovereign rating: S&P

The direction and pace of policy reforms in India will have a greater bearing on the country’s sovereign ratings, than which political party or coalition takes control after the general elections, global ratings agency Standard and Poor’s (S&P) said in a statement on Tuesday.

S&P’s rating of India is ‘BBB-‘ with a negative outlook. ?We believe that the current political landscape in India suggests that no single party could win an outright majority. An important factor is how fragmented the government will be,? the agency said.

?The more parties involved in the next coalition government, the more likely policies will be incoherent and less supportive of credit attributes,? S&P added.

Last week, Fitch had affirmed India’s long-term currency issuer default ratings at BBB-, and maintained its stable outlook on the country.

It had also forecast real GDP growth to rise from 4.7% in FY14 to 5.5% in FY15 and 6.0% in FY16. Commenting on the elections, Fitch had said that while the course of the economy was uncertain, once the next government starts implementing its economic policies, ? it will become clearer whether the economy can return to a higher sustainable growth path or whether it remains stuck at current levels?.

On Tuesday, S&P said that the outcome of India’s general election can provide an insight into the political stability, ability, and willingness of the new government to implement reforms for boosting economic growth.

?If we revise our sovereign outlook to stable, those negative outlooks on banks and corporate entities, which reflect the sovereign outlook, could also be revised to stable,” it said, adding that a decisive mandate would create an environment for speedy resolution of policy bottlenecks and reforms, and improve private sector investments.

While this would lay the foundation for India’s return to a stronger and healthier growth phase in the medium term, conversely, a fragile government could further delay critical reforms as decision-making may get hampered, curbing revival in the investment cycle and derailing growth, it added.

?In our opinion, structural reforms are essential for India to return to healthier economic growth of above 6% on a sustainable basis and stimulate investments,? S&P said.