Expressing confidence in India's ability to bounce back after the Covid crisis abates, Standard & Poor's retained India's sovereign credit rating at BBB- with stable outlook.
The ratings agency said, "While risks to India's long-term growth rate are rising, ongoing economic reforms, if executed well, should keep the country's growth rate ahead of peers."
This comes after Moody's downgraded India's sovereign rating at the beginning of this month citing that the "country's policy making institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector".
S&P has forecast India's economy to shrink by 5 per cent this fiscal.
Here's what led S&P to retain the ratings:The Good: India's above average real GDP growth, sound external profile,strong democratic institutions that promote policy stability are some of the factors that led to S&P retaining the sovereign rating at BBB- with a stable outlook. It also expressed hope in the ongoing reforms process which it said could help India stay ahead of peers if executed well.
On its external position, S&P commented:"India's overall external position remains a credit strength, largely owing to the economy's limited external indebtedness. We expect India's current account deficit to decline modestly this year, and to continue to improve over the forecast period, largely owing to its improving terms of trade on weaker oil prices."
On its external position, S&P commented:"India's overall external position remains a credit strength, largely owing to the economy's limited external indebtedness. We expect India's current account deficit to decline modestly this year, and to continue to improve over the forecast period, largely owing to its improving terms of trade on weaker oil prices."
The Bad: The risk to fiscal slippages at a time of higher government borrowings and low per capita income adding to the general government debt are some of the factors that pose a risk to long term stability. "We forecast overall net general government debt will rise to more than 80% of GDP this year, from just over 70% of GDP in fiscal 2020," S&P observed.
It further added that expenditure rationalisation is unlikely to offset the competing dynamics of lower revenue and new expenditures under the stimulus package.
However, the ratings major placed its faith in a significant recovery in India's fiscal position after the current fiscal. It expects government's fiscal deficit to touch 11 per cent this year. It said that the rating could be raised if the fiscal deficit is curtailed resulting in lower net indebtedness at the government level.
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