Despite the hard-sell by the Finance Ministry, international rating agency Standard & Poor’s (S&P) has re-affirmed ‘BBB (minus)’ for sovereign rating. The outlook on the long-term rating remains negative.
BBB (minus) rating is the last investment grade rating. “India's long-term growth prospects, underpinned by its favourable demographic profile, and its high foreign exchange reserves support the ratings. The country's large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings,” the agency said in a statement.
The agency expects India's real GDP per capita growth will likely rebound to 4.6 per cent in the current fiscal year from 3.6 per cent a year ago. These are higher than those of most of its peers' but substantially lower than about 6 per cent on average over the five years up to the fiscal year ended March 2012, it added.
Although part of this slower growth is cyclical, rigidities in the labour and product markets and inadequate infrastructure constrain the country's medium-term growth prospects. Despite the initiatives from the cabinet committee on investments to cut red-tape on infrastructure and power projects, that committee's success in raising investment growth remains uncertain.
"India's external position remains resilient despite a deterioration in the past two years," agency’s credit analyst Takahira Ogawa said while adding, "However, India's current account deficit widened significantly to 4.2 per cent of GDP in fiscal year ended March 2012 and our estimate of 4.5 per cent in the fiscal year ended March 2013, the highest level in more than a decade, from 1-2 per cent before that."