India’s ratings to depend on post-poll policy direction: S&P

The direction and pace of policy reforms, more than which party took control after the general elections, could affect India's sovereign rating, global rating agency Standard & Poor's said yesterday, The Times of India reported.

In its report yesterday, the rating agency said the outcome of India's general election could provide an insight into the political stability, ability, and willingness of the new government to implement reforms for boosting economic growth.

The report quoted Standard & Poor's sovereign credit analyst Kim Eng Tan as saying, the agency believed that the current political landscape in India suggested that no single party could win an outright majority.

Tan added an important factor was how fragmented the government would be; the more the parties involved in the next coalition government, the more likely policies would be incoherent and less supportive of credit attributes.

The agency had a BBB (minus) rating on India, which was a notch above the junk grade.

"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. Ratings on government-related entities (GREs), companies rated above the sovereign, and banks that are capped at the sovereign rating level or benefitting from uplift due to government support will likely be downgraded, if we lower the sovereign rating, " the agency said.

The threat of a ratings downgrade had led  the UPA coalition to take measures to repair public finances and to stabilise the currency, Reuters reported.

While the impact of some of those measures had helped avert a downgrade, the broader economy still suffered from a slowdown.

Tan said in a webcast, that if in the future the government implemented policies that effectively addressed some of the credit weaknesses that he had highlighted, the agency could revise the outlook to stable again.

He added, in the absence of effective policy action, the agency could lower the ratings on the sovereign.

S&P rated India as "BBB-minus" and was the only one of the three major credit agencies to have a "negative" outlook.