S&P retains India’s rating at ‘BBB-’ with stable outlook

Global ratings agency Standard and Poor’s (S&P) on Monday affirmed India’s long-term sovereign credit rating at ‘BBB-’ and short-term rating at ‘A-3’ with a stable outlook. But it warned the ratings could be downgraded if growth is lower than expected due to stalled reforms or if inflation does not remain under control.

“Downward pressure on the ratings could re-emerge if growth disappoints (perhaps as a result of a 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,” it said.

The ratings agency, however maintained that it does not expect to revise the country’s sovereign ratings either this fiscal or the next.

“The ratings on India reflect the country’s sound external profile and improved monetary credibility,” it said in a release.

An upward revision in the ratings could take place if reforms by the government help to improve the fiscal position and the net government debt falls below 6 per cent of the GDP.

S&P said improvements in policy making have raised the prospects of the economic and fiscal performance and forecast GDP growth at 7.4 per cent in 2015 and 8.2 per cent next fiscal.

It pegged consumer price index based inflation at 5.8 per cent in 2015 and 5.4 per cent next year, adding that the Reserve Bank of India’s formal inflation targeting and setting up of the monetary policy committee will “support the RBI’s ability to sustain economic growth while attenuating economic or financial shocks”. The report, partly based on discussions with Finance Ministry officials last month, is likely to disappoint the government, which has been pushing for an upgrade in the country’s sovereign ratings based on an improved macro-economic scenario.

The ratings agency further noted that governing parties have made progress on reaching a consensus on many “long standing impediments to growth” such as improving the business climate and labour and tax reforms.

It listed the low GDP per capita, estimated at $1,700 in 2015 as a key constraint on the ratings. It also raised concerns over the high fiscal deficit, poor profitability of public sector banks, and losses of state electricity boards. “Overall, we believe public finances are set to remain a key rating constraint for some time,” it said.

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