NEW DELHI: Just a week after Moody’s upgraded India’s sovereign rating for the first time in 13 years, rival S&P Global Ratings opted to maintain status quo, sticking to its earlier rating of ‘BBB-’ — the lowest investment grade rating for bonds. While the agency acknowledged that India’s growth forecast remained robust for 2018-20 and forex reserves are expected to continue rising, it also said that “sizable fiscal deficits, a high net general government debt burden, and low per capita income detract from” India’s credit profile.
S&P also retained India’s ‘stable’ outlook over the next two years based on strong growth and fiscal consolidation forecasts. However, downward pressure on ratings could emerge if growth disappoints; net general government deficits rise sharply; or if political will to maintain the reform agenda loses momentum, it warned.
Coming in the wake of the government tom-tomming the Moody’s upgrade as a “belated recognition” of its efforts to strengthen the economy, S&P’s caution is set to give the Opposition more ammunition to question the Centre.
Government officials lost no time in terming the decision “a bit unfair”, with principal economic adviser Sanjeev Sanyal declaring that India’s low per capita income was not a “reflection on (India’s) ability or willingness to pay debt”. Economic affairs secretary S C Garg also pointed out that while the government isn’t disappointed, its expectation was that “S&P also takes into account what the government has done”.
Analysts indicate that S&P’s caution is likely due to its conservative bias, with the agency waiting for results of reforms and Centre’s willingness to stick to the fiscal consolidation path before venturing an upgrade. “A positive rating action seems most likely in 2018... because, resolutions will possibly start to happen in Q4FY18..,” pointed out Soumya Kanti Ghosh, group chief economic adviser, SBI.
Medium term outlook positive
S&P said that while one-off factors, such as demonetisation and GST, have led to some quarterly cooling in growth figures, the medium-term outlook remains favourable, based on private consumption, an ambitious public infrastructure investment programme, and a bank restructuring plan that should help revive investment.