Rating Unchanged But S&P Lauds India’s Reforms On Infrastructure, Bank Recapitalisation and GST  

Unfazed by the Moody’s recent upgrade of India’s sovereign rating, Standard & Poor’s (S&P) on Friday kept its sovereign rating for India unchanged at 'BBB-minus’ while keeping its outlook for the nation stable. BBB- rating is a notch above junk status.

The New York based credit rating agency, however, lauded a host of initiatives surrounding India’s infrastructure development such as its biggest tax reform, Goods and Services Tax (GST), which is aimed at simplifying indirect taxes, as also public sector banks recapitalisation plan.

Infrastructure

As part of the country’s biggest highway development plan Bharatmala, the government in October approved Phase 1 of the project to develop and expand approximately 40,000 kilometres of roads at an investment of Rs 3.5 lakh crore by 2022.

“Public-sector-led infrastructure investment, notably in the road sector, will also stimulate economic activity, while private consumption will remain robust,” S&P observed in the report.

Public Sector Bank Recapitalisation

The global rating agency also appreciated the government’s programme of Rs 2.11 lakh crore to recapitalise the stressed public sector banks last month and noted that the move will help to revive growth.

“The medium-term outlook for growth remains favourable, based on private consumption, an ambitious public infrastructure investment programme, and a bank restructuring plan that should help revive investment,” said S&P.

“We anticipate that growth will be supported by the planned recapitalisation of state-owned banks, which is likely to spur on new lending within the economy, it added.

Goods And Services Tax

The Narendra Modi government’s GST initiative was also lauded by S&P. “The removal of barriers to domestic trade tied to the imposition of GST should also support GDP growth,” it said.

In a statement on Friday, 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.”

Reactions

Union Railways Minister Piyush Goyal said the S&P report was an affirmation of policies by Prime Minister Modi. “It's an affirmation of the policies of the government being recognised worldwide. S&P has given an overall positive outlook with much praise for Modi government’s initiative."

Lauding the report by S&P, Defence Minister Nirmala Sitharaman said, “Whether it’s World Bank rankings on ease of doing business, Moody’s rating or S&P now, it is clearly indicating that the Indian economy is strong, moving forward and has the potential for growing at a very high rate.”

Subhash Chandra Garg, Department of Economic Affairs Secretary, said S&P chose to play it cautious and expressed hope that India’s rating would be upgraded next year.

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.”