S&P keeps outlook on India stable, retains

A week after a surprise upgrade of India's sovereign ratings by Moody's Investors Service, global rating agency Standard & Poor's (S&P) has kept India's sovereign rating unchanged at "BBB-minus" while retaining outlook on India "stable".

It said sizable fiscal deficits, a high net general government debt burden, and low per capita income detract from the sovereign's credit profile. "We are affirming our 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on India," the agency said.

S&P, however, declared that "Despite two quarters of weaker-than-expected growth, India's economy is forecast to grow robustly in 2018-2020 and foreign exchange reserves will continue to rise."

"Stable outlook reflects our view that over the next two years growth will remain strong, India will maintain its sound external accounts position and fiscal deficits will remain broadly in line with our expectations," it added.

S&P also said "India's strong democratic institutions and its free press promote policy stability and compromise, and also underpin the ratings."

S&P had last changed India's rating in January 2007 to BBB-, which is the lowest investment grade for bonds, while describing the outlook as 'stable'. It changed the outlook to 'negative' in 2009 and raised it to 'stable' in 2010. In 2012, S&P again lowered the outlook to 'negative', which it raised to 'stable' soon after the Modi government assumed office in 2014. The rating, however, remained unchanged at BBB-.

Government circles were disappointed because Moody's had on November 17 upgraded India's credit rating to "Baa2" from "Baa3" for the first time since 2004. It cited the NDA government's "wide-ranging programme of economic and institutional reforms" among the reasons for the move."

It believed that introduction of GST should also spur the economic activity in the country. "The removal of barriers to domestic trade tied to the imposition of GST should also support GDP growth," said the firm.

Commenting on the government's mega plan of Rs 2.11 lakh crore to recapitalise the stressed public sector banks last month, S&P recognised that the move will help to revive growth.

It also lauded the administration's efforts surrounding infrastructure development particularly the Phase 1 of Bharatmala project to develop and expand approximately 40,000 km of roads at an investment of Rs 3.5 lakh crore by 2022.

The officials, however, said S&P had not taken into account the reforms undertaken by the Modi government in the last three years. But Union Minister Piyush Goyal, said, "It's an affirmation of the policies of the government being recognised worldwide. S&P has given an overall positive outlook with much praise for Modi govt's initiative".

However, on the issue of upgrade, Goyal said, "We didn't expect any upgrade from S&P at this time. Moody's has done two upgrades so far and S&P is known to be conservative".

Rajiv Kumar, Vice Chairman of Niti Aayog said, "Status quo would mean S&P not apprised of reforms over the past three years."

Economic affairs secretary Subhash C Garg referred to the concerns raised by S&P in terms of sizeable fiscal deficit and high govt debt burden.

He said, "S&P has the same two concerns as Moody's". On the issue of reforms, he said, "S&P has raised comments as Moody's on reforms. S&P has said everything that Moody's said and they have affirmed India's growth story".

Former economic affairs secretary, Shaktikanta Das, however, said, "I don't find any recognition of the reforms undertaken in the last 2-3 years."

Reacting to the development, shares ended higher on the stock market, with IT stocks in the driver's seat. The 30-share BSE  Sensex  finished at 33,679, a three-week high and the Nifty closed a little short of 10,400. Consumer durables and IT stocks turned out to be big movers.