S&P retains ‘BBB-’ rating with a stable outlook, rules out any upgrade in two years owing to weak public finances and low per capita income
The Indian government saw it coming, yet it did little to improve the chances for an upgrade from global rating agency Standard & Poor’s (S&P).
Dashing government’s hope of improved credit rating, S&P on Wednesday retained India’s rating at ‘BBB-’ with a stable outlook and ruled out any upgrade in two years, citing weak public finances.
BBB- is the lowest investment grade, just a notch above ‘junk’ status signifying highest risk premium that a sovereign borrowing would entail.
The warning signals were issued initially in February and again in April, giving the government some time to change track.
“Without marked improvements in the general government’s fiscal outturns and accompanying declines in net debt, we do not expect to change our rating on India (BBB-/Stable/A-3) this year or next, based on our current set of forecasts,” S&P credit analyst Kyran Curry had said in a report on Indian economy in April.
The moot point behind the assessment was the observation that despite the commitment to encourage investment in manufacturing and infrastructure and bolster rural demand through welfare programs while containing the fiscal deficit, limited progress in fiscal consolidation can’t reduce vulnerabilities associated with low per capita income and weak public finances.
S&P repeated on Wednesday what it had highlighted six months back, stating that “vulnerabilities stemming from its low per capita income and weak public finances” continue to be there.
Country’s “sound external position and inclusive policymaking tradition” has helped the rating get a stable outlook despite such weakness, the agency indicated.
Improvements in policymaking continue to strengthen the prospects for India’s economic and fiscal performance although wide fiscal deficits, heavy debt burden, and low per capita income nonetheless detract from the sovereign’s credit profile, it said.
Responding to the rating stance, the government managed only a feeble opposition, considering that the warnings were sounded before. Economic Affairs Secretary Shaktikanta Das complained that upgrade didn’t come despite unparalleled reforms being undertaken and called for introspection on part of the rating agencies. There’s a “disconnect” between what the rating agencies think and investor perception of India, he said. “It’s a question which calls for an introspection among those who do the rating,” Das said.
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