S&P to keep India's rating at a low BBB- for next 2 years, govt not bothered
03 Nov 2016
US-based credit rating agency Standard & Poor's on Wednesday decided against an upgrade of India's sovereign rating despite policy reforms and economic stability and instead keep the low `BBB-' rating at least for the next two years.
S&P Global Ratings kept India at the lowest investment grade rating of 'BBB-' with a 'stable' outlook, and asked the Modi government to put in more efforts to lower government debt to below 60 per cent of GDP. The rating agency also saw no reason for the government's revenues to rise enough to meaningfully lower the deficit over the medium term.
S&P's rating decision invited strong criticism from the Indian government, which asked the rating agency to see reason and learn from investors rather than base estimates on irrelevant benchmarks. The government also said there was a disconnect between its thinking and investors' perception.
"The stable outlook balances India's sound external position and inclusive policy making tradition against the vulnerabilities stemming from its low per capita income and weak public finances," S&P said in a statement.
However, on the outlook, it said, "indicates that we do not expect to change our rating on India this year or next, based on our current set of forecasts".
Fitch Ratings also rates India at 'BBB-minus', the lowest investment-grade, with a 'stable' outlook. Moody's Investors Service rates India at an equivalent 'Baa3', but with a "positive" outlook.
Economic affairs secretary Shaktikanta Das said the rating agency's decision not to upgrade India's sovereign rating did not yell well with the fact that reforms undertaken by India unparalleled any major economy anywhere in the world and that called for an 'introspection' on part of rating agencies.
Stating that there was a "disconnect" between what the rating agencies think and investor perception of India, he said the government would continue to take measures to strengthen the economy, boost GDP growth rate and create jobs.
Das said investors are counting on the various steps taken by the government in last two years, including building strong external position, controlling inflation and structural reforms like the goods and services tax and bankruptcy code, adding that global investors feel India is highly "under- rated".
"If you compare the various factors which the report itself talk about, is there any other economy that equals this? So with all this if there no improvement I think it's a matter for the rating agency itself to put a question to itself and perhaps undertake a kind of introspection," he said.
"If the rating has not been improved, it's a matter which doesn't bother us so much. It's a question which calls for an introspection among those who do the rating," Das said.
Another rating agency Moody's had, in September, said it would not change its rating of India for at least the next 1-2 years with slow reforms, private investment too muted and banks facing the challenge of non-performing assets.
S&P said for any ratings upgrade the government reforms should markedly improve India's fiscal performance and push down the level of net general government debt below 60 per cent of the GDP.
Currently, government debt amounts to about 69 per cent of the GDP.
Downward pressure on the ratings could come from a failure of the interest rate-setting monetary policy committee to achieve inflation targets.
A higher-than-expected deterioration in the nation's external liquidity position could also put downward pressure on ratings, S&P added.
The rating agency expects the Indian economy to grow 7.9 per cent in 2016 and 8 per cent on average over 2016-2018. It also expects current account deficit to be at 1.4 per cent of the GDP in 2016 and the RBI to meet its inflation target of 5 per cent by March 2017.
