Standard & Poor's kept the sovereign rating at 'BBB-', suggests GDP growth will remain strong over next two years
Standard & Poor's (S&P) on Friday kept its sovereign rating for India unchanged at 'BBB-' while keeping its outlook for the nation stable. S&P said the 'stable' outlook for India reflects its sound external account position. It also suggests India's GDP growth would remain strong over the next two to three years.
According to the global rating agency, India's sizable fiscal deficit, low per capita income and high government debt detract from sovereign credit profile, adding that the fiscal gap was in line with expectations.
Moody's last week had upgraded India's sovereign ratings to Baa2 from its lowest investment grade Baa3, citing the Modi government's wide-ranging programme of economic and institutional reforms. Union minister Piyush Goyal said the latest report by S&P is "very satisfying," according to news agency ANI. "All in all, it is a very satisfying report. It shows that the economy is strong and is improving further. As per their projection, pace of development will accelerate further in 2018-20," ANI quoted the railways minister as saying.
Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, said in a report that despite the recent sovereign upgrade of India by Moody's, S&P left India's sovereign rating unchanged at BBB– and outlook as stable. "An analysis of the foreign currency long term sovereign ratings given by S&P for a group of twenty countries for the period 2005-17 indicates that with India currently being in BBB- rating class, there is only a 5% probability of rating upgrade. Hence a rating action was always difficult," said Ghosh.
Ranen Banerjee, partner - public finance and economics, PwC India, said S&P's review is taking into consideration a perspective over last three years while Moody's one is over 13 years. He said, "This is clearly a conservative call wherein S&P would like to see the results of the reforms initiated before a ratings revision while Moody's has taken the call based on the reforms initiated. S&P has stated that there will be a case for upward revision in the event if there is improvement in fiscal position and reduction in net debt. Given we are heading into the last year of the government in the next fiscal year, they could have chosen to wait."
RATING RACE
- The move by S&P is likely to disappoint equity investors, who were awaiting another upgrade.
- Moody’s last week upgraded India’s sovereign ratings to Baa2
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