HYDERABAD: Standard & Poor (S&P) on Thursday affirmed India’s sovereign rating of BBB- and maintained a stable outlook. Stating that India was coursing through a cyclical rather than a structural economic slowdown, the global ratings firm said GDP growth will recover towards the longer-term trend rates over the next two-to-three years. “Despite a notable deceleration in India’s economy in recent quarters, we believe its structural growth outperformance remains intact. Real Gross Domestic (GDP) growth is therefore likely to gradually recover in the longer run, maybe over the next two-to-three years,” an S&P statement said.
Nevertheless, it added that India’s fiscal position remains precarious, with elevated fiscal deficits and net government indebtedness. “Fiscal deficits have exceeded the government’s plan, and we expect limited consolidation over the next few years,” it explained. The ratings on India reflect the country’s above-average real GDP growth, sound external profile and evolving monetary settings, S&P said, adding that India’s strong democratic institutions promote policy stability and compromise and also underpin the ratings. These strengths are balanced against vulnerabilities stemming from the country’s low per capita income and consistently elevated fiscal deficits that contribute to high general government debt, net of liquid assets. According to S&P, India’s economy will continue to outperform peers at a similar level of income, despite a recent slowdown in real GDP growth.
It may be noted that RBI last week projected GDP growth to expand by 6 per cent in FY21, while the Economic Survey tabled in Parliament last month pegged it at 6-6.5 per cent. The government has taken a slew of measures to revive economic growth that’s expected to settle at 5 per cent this fiscal. Just last week, Finance Minister Nirmala Sitharaman said several important indicators have emerged in the recent past, hinting at green shoots in the economy. They include rising net portfolio investments, rebound in industrial activity, increase in forex reserves and growth in GST collections.
Meanwhile, S&P said, upward pressure on the ratings could build if the Centre significantly curtails its fiscal deficits, resulting in lower net indebtedness at the general government level and that upside potential on the ratings could also increase if India’s external accounts strengthen. In the same breath, it said, downward pressure on ratings could emerge if India’s GDP growth falls well below forecasts, leading to reassess view of growth trend. Further rise in net general government deficits from their current elevated levels and political developments that materially undermine economic reform momentum would also trigger downward pressure in ratings.