S&P retains India rating at BBB-, keeps stable outlook

S&P retains India rating at BBB-, keeps stable outlook

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 instead of a structural economic slowdown, the worldwide ratings firm said GDP growth will recover towards the longer-term trend rates over subsequent 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 within the longer run, maybe over subsequent 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 that we expect limited consolidation over subsequent 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 quick assets . consistent with S&P, India’s economy will still outperform peers at an identical 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 govt has taken a slew of measures to revive economic process that’s expected to settle at 5 per cent this fiscal. Just last week, minister of finance Nirmala Sitharaman said several important indicators have emerged within the recent past, hinting at green shoots within 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, leading to lower net indebtedness at the overall government level which upside potential on the ratings could also increase if India’s external accounts strengthen. within the same breath, it said, downward pressure on ratings could emerge if India’s GDP growth falls well below forecasts, resulting in 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.