Standard and Poor’s raised the outlook for India’s “BBB-minus” rating back to “stable” from “negative,” saying Prime Minister Narendra Modi government’s “strong” mandate would allow it to implement fiscal and economic reforms.
S&P had cut India’s rating to “negative’ in April 2012, and that came to symbolize the plummeting investor confidence in India because of corruption cases and the lack of action by the then Congress-led government.
However, foreign investor confidence in India has returned, leading to a surge in interest from overseas, after the election in May of Modi, who pledged to revive investments and boost economic growth.
“Our outlook revision indicates that we believe the current government’s strong mandate will enable it to implement many of its administrative, fiscal and economic reforms,” S&P said in its statement.
“We believe the current administration will remedy, to varying degrees, the growth impediments – policy paralysis, energy supply bottlenecks and administrative obstacles.”
India is now rated at the lowest investment grade with a “stable” outlook by all three major global credit agencies.
S&P cited India’s external position and its improving current account balance as other positive factors for its credit rating.
However, the credit agency noted that key constraints were India’s “low wealth level” as well as its “weak public finances”.
S&P added it could raise India’s rating should India revert back to a real per capita gross domestic product of 5.5 per cent per year, and if its fiscal, external and inflation metrics improve.
But the agency warned it could lower India’s rating should the government’s reform agenda stall.
“The stable outlook for the next 24 months reflects our view that the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential, consolidate its fiscal accounts, and permit the Reserve Bank of India to carry out effective monetary policy,” it said.