No upgrade, S&P keeps India just a notch above junk status

Rating agency cites sizable fiscal deficit, low per capita income and high government debt

Global rating agency Standard & Poor’s (S&P) on Friday kept its sovereign rating for India unchanged at ”BBB-/A-3” and maintained its outlook stable, business TV channel ETNow reported in an exclusive news break.

That cut short the euphoria over Moody’s sovereign rating upgrade for India, and also gave credence to critics’ view that the ruling Modi government might have earned last week’s promotion with excessive lobbying.

India’s benchmark equity indices had rallied earlier in the day amid speculation over the S&P ratings review, which many thought would lead to an upward revision. But the outcome might not go down well with investors. The equity indices are up around 26 per cent this year.

ET NOW said S&P cited sizable fiscal deficit, low per capita income and high government debt for keeping the rating at ‘BBB-‘, just one grade above junk status, though the rating agency said the fiscal gap was in line with expectations.

The report said S&P expects India to see robust economic growth over 2018-2020.

The rating agency is also said to have had a favourable view of the reforms being carried out by the Modi government and lauded India’s fiscal consolidation. It said the stable outlook for India reflects its sound external account position.

Last Friday, Moody’s upgraded India’s sovereign ratings to Baa2 from its lowest investment grade Baa3 citing the NDA government’s “wide-ranging program of economic and institutional reforms” among the reasons for the move.

In October, S&P had said India needs to improve its fiscal position for a rating upgrade.
The recent government move to lower the GST rate on a number of commodities and the reduction in excise duty on fuels have raised concerns that the government might slip on its fiscal goal, which is to meet a fiscal deficit target of 3.2 per cent of gross domestic product by March-end 2018.

The government, though, maintains that the government was on course to meet the fiscal deficit target.

Narendra Modi’s BJP is fighting a tough election in his home state Gujarat and Greed and Fear Report author Chris Wood of CLSA on Friday said should the BJP fail to win this election, it might be the Waterloo for the Prime Minister. Some analysts say dissention over the GST rollout and last year’s cash ban might have a bearing on the poll outcome in the trading community-dominated state.

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