S&P refuses to upgrade India’s ‘BBB-‘ rating

Global agency Standard and Poor's on Monday ruled out any rating upgrade for India, though it said improvement in policy making has raised the country's prospect for economic and fiscal performance.

The agency retained India's rating at 'BBB-' with stable outlook and expressed hope that country's economic growth would average about 8 per cent in the 2015-18 period.

"We are affirming our 'BBB-' long-term and 'A-3' short- term sovereign credit ratings on India," it said.

'BBB-' is the lowest investment grade rating and stable outlook reduces risk of possible sovereign rating downgrade.

The stable outlook, it said, "balances India's sound external position and inclusive policy making traditions against the vulnerabilities stemming from its low per capita income and weak public finances.

"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," S&P said in a statement.

The agency also cautioned that downward pressure on the ratings could re-emerge if growth disappoints (perhaps as a result of stalling of reforms), if, "contrary to our expectations, the new monetary council is not effective in achieving its targets, or if the external liquidity position of the nation deteriorates more than we currently expect".

However, it added upward pressure on the ratings could build if the government's reforms markedly improve its general government fiscal outturns and with them the level of net general government debt so that it falls below 60 per cent of GDP.

"Stable outlook indicates that we do not believe India's public finances will improve sufficiently this year or the next to warrant an upgrade, nor that its economic, external, or monetary profiles will slip enough to prompt a downgrade," the agency said.

A rating constraint, S&P said, is India's low GDP per capita, which "we estimate at $1,700 in 2015". India's growth outperforms its peers and is picking up modestly, it added.

"Following India's early 2015 rebasing of GDP, we expect GDP growth of 7.4 per cent in 2015 (6 per cent in GDP per capita terms) and for it to average just under 8 per cent over 2015-2018 (just under 7 per cent in GDP per capita terms).