S&P maintains ‘stable’ outlook, India seeks upgrade

New Delhi, Nov 2 (IANS) Standard and Poor’s on Wednesday maintained its stable outlook for India in its latest update, even as the Finance Ministry felt that the rating must be upgraded in tune with the global investor sentiment towards the country and its continuing economic reforms and improved macro stability.

“We are affirming our ‘BBB-‘ long-term and ‘A-3’ short-term sovereign credit ratings on India. The stable outlook balances India’s sound external position and inclusive policy making tradition against the vulnerabilities stemming from its low per capita income and weak public finances,” Standard and Poor’s said.

While the rating agency lauded the likely introduction of Goods and Services Tax (GST) in the first half of 2017 “to replace complex and distortive indirect taxes”, it ruled out any rating upgrade “this year or next, based on current set of forecast”.

Reacting to the S&P stable outlook, Economic Affairs Secretary Shaktikanta Das said the rating agencies need to introspect as to why India’s rating was not improved.

“Cannot understand why India’s rating has not been upgraded. The rating agencies need to internally examine the disconnect between foreign investors’ and rating agencies’ views,” Das told reporters.

“Investors agree that India is highly under-rated country. Many Canadian investors bullish on India, have invested huge chunks in one-two years,” he said.

However, Das said the rating agency’s comments will be taken in the right spirit by the government.

“We are not questioning anybody’s methodology. We value comments and observations of S&P,” he said.

“S&P outlook on India highlights the reforms undertaken by the government. It recognises that India is continuing structural reforms,” he added.

In its outlook for India, the rating agency said improvements in policy making continue to strengthen the prospects for its economic and fiscal performance.

Wide fiscal deficits, a heavy debt burden, and low per capita income nonetheless detract from the sovereign’s credit profile, S&P said.

“India’s strong democratic institutions and a free press, which promote policy stability and predictability, also underpin the ratings,” it said.

Other measures include strengthening the business climate (such as through simplifying regulations and improving contract enforcement and trade), boosting labour market flexibility, and reforming the energy sector, it added.

“We believe these measures, supported by India’s well-entrenched democracy, will promote greater economic flexibility and help redress public finances overtime,” it said.

A rating constraint is India’s low GDP per capita, however, India’s growth outperforms its peers and is picking up modestly, the agency said.

“We expect GDP growth of 7.9 per cent in 2016 and eight per cent on average over 2016-2018. We believe domestic supply-side factors will increasingly bind economic performance, and the government has little ability to undertake counter cyclical fiscal policy given its current debt burden,” it said.

On the inflation target, it said the Reserve Bank of India is expected to achieve the inflation target of five per cent by March 2017 as it advances along a glide path to the medium-term inflation target.