The Hindu Business Line : S&P marks up India's rating to investment grade

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Mumbai Jan. 30 International rating agency Standard and Poor's on Tuesday upgraded India's sovereign rating from speculative to investment grade. This comes 15 years after the agency downgraded the country in 1991. The agency said the country's outlook is stable.

The other international ratings agencies have already upgraded India to investment grade; Moody's Investor Service did so in 2004 followed by Fitch Rating in 2006.

"The upgrade (to BBB-/A-3 from BB+ /B) on India's rating to investment grade reflects the country's strong economic prospects and external balance sheet and its deep capital market, which supports a weak, but improving, fiscal position," S&P said in a statement today.

The agency has also revised the rating of several banks and corporates including SBI, ICICI Bank, IDBI, Indian Oil Corporation and NTPC.

According to analysts, the revision in sovereign rating could result in higher allocation of funds for investments in India by international institutional investors. This will also help Indian corporates to raise funds at better rates overseas, though sovereign rating has not been a constraint for several large Indian companies.

On the rating rationale, S&P's credit analyst, Mr Ping Chew, said: "India's economic prospects remain strong and are rising gradually, with GDP trend growth likely to average more than 7.5 per cent in the medium term."

Gradual reforms and consistent monetary and fiscal policy stances have sustained macroeconomic stability. This has led to strong growth prospects and attracted foreign and NRI capital.

India's strong institutions have also provided for relative stability in policy, politics, and business environments against volatility usually associated with lower income levels.

Moreover, India's external balance sheet is strong due to reserves accumulation and prudent debt management. Forex reserves, now at $178 billion, are more than 16 times of India's short-term debt and five times of gross financing requirements, provide a buffer from changes in external and domestic investor confidence.

These strengths are likely to continue, despite the current account deficits, on the expectation of strong capital inflows.

"The upgrade also reflects an improving fiscal position. Fiscal consolidation commitments across all levels of governments look to be entrenched," Mr Chew said.

India also has a well-functioning bond market, especially when compared with its rated peers and income group, providing long-term financing for the government's deficits.

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