Government says action unfair, neither a reflection on the ability or willingness to pay debt
Standard & Poor's yesterday kept its sovereign rating for India unchanged at 'BBB-minus' with 'stable' outlook saying vulnerabilities stemming from low per capita income and high government debt balance strong GDP growth. The rating action was quickly termed by the government as "unfair".
Upward pressure on the ratings could build if the government's reforms markedly improve its net general government fiscal out-turns and so reduce the level of net general government debt, S&P said
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The rating stance taken by S&P Global Ratings comes days after Moody's Investors Service raised India's sovereign rating for the first time in over 13 years on growth prospects boosted by continued economic and institutional reforms.
In a statement, S&P said India's rating reflects its strong GDP growth, sound external profile and improving monetary credibility. These, it said, are "balanced against vulnerabilities stemming from the country's low per capita income and relatively high general government debt stock."
Sanjeev Sanyal, Principal Economic Adviser, termed the rating as "a bit unfair" saying the low per capita income is "neither a reflection on our ability or our willingness to pay debt." In January 2007, S&P had raised sovereign credit ratings on India to 'BBB-' with a stable outlook, from 'BB+'. 'BBB' rating is a notch above junk status.
"Upward pressure on the ratings could build if the government's reforms markedly improve its net general government fiscal out-turns and so reduce the level of net general government debt," S&P said. The upward pressure could also build if India's external accounts strengthen significantly. On the other side, a disappointing GDP growth, rise in government deficit or political will to maintain reform agenda losing momentum will create downward pressure on the ratings.
It said one-off factors like demonetisation and the imposition of a goods and services tax (GST) had led to some quarterly cooling in India's high growth figures but the medium-term outlook for growth remains favourable. The growth outlook is supported by rising private consumption, an ambitious public infrastructure investment programme and a bank restructuring plan that should help revive investment.
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