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S&P raises India's sovereign rating
MUMBAI: International rating agency Standard and Poor's (S&P) on Tuesday finally acknowledged what everybody else across the world already seems to know. India is worth investing in.
S&P, which took 15 years to raise the country's sovereign rating from speculative to investment grade, said: "The upgrade reflects the country's strong economic prospects, external balance sheet, and its deep capital market, which supports a weak, but improving, fiscal position."
Moody's, another globally-known rating agency, raised India to investment grade in 2004; Fitch followed suit in August last year. S&P had downgraded India from investment grade in May 1991 when the country's foreign currency reserves had eroded to such an extent that it had just about enough to meet import bills for two weeks and was staring at a balance of payments crisis. The rating agency explained that it had considered India below investment grade until now because of the poor state of its public finances.
However, the combined fiscal deficit of the state and central governments at about 7.5% of GDP was still a tad too high for comfort, S&P added. Even now, total debt is equal to 85% of annual output and 35% of revenues are used to pay interest on loans.
The economic reforms flagged off in 1991 did address some of these issues but progress tapered off from the mid-nineties. It was only after 2000 that governments have managed to rein in profligacy and bring some order to borrowing and spending.
"Fiscal vulnerabilities are now being addressed structurally," Ping Chew, S&P's managing director of corporate and government ratings for Asia, said. "We are a little more sure that these (fiscal consolidation) trends are more entrenched, both from a policy and economic growth angle. It is only in the last few years that India's finances have been fixed," Chew said.
The Indian economy has grown at an average rate of over 8% in the past three years, fuelled by demand for goods and services from an increasingly affluent middle class and booming industry. S&P expects the $854 billion (latest IMF estimates) economy to become the third fastest growing in Asia Pacific this year. It is currently the fourth-largest behind Japan, China and Korea.
Global investment banker Goldman Sachs had last week raised its own forecast of India's growth. It now expects the country to grow at over 8% until at least 2020 and become the second largest economy, ahead of the US and behind China by 2050.
The upgrade in sovereign rating will boost India's chances to attract much needed investments into highways, ports, education and healthcare. The country has been a lucrative destination for portfolio investors who have poured in over $8 billion into Indian shares and bonds this financial year. The S&P re-rating will likely remove doubts in the minds of those investors who take credit rating as the last word.
For the record, S&P itself has been a keen investor in the fast-growing rating and advisory business in India for several years now. The agency, however, warns that the ratings on India remain constrained by the country's weak fiscal profile, especially its high government debt burden and deficit, which is still one of the worst among all rated sovereigns.
"Further rating improvements will depend on sustained prudent fiscal policy that leads to a decline in government debt and interest burden, and further reforms that lift the growth prospects and income levels," Chew said.
http://timesofindia.indiatimes.com/SP_raises_Indias_sovereign_rating/articleshow/1541039.cms
MUMBAI: International rating agency Standard and Poor's (S&P) on Tuesday finally acknowledged what everybody else across the world already seems to know. India is worth investing in.
S&P, which took 15 years to raise the country's sovereign rating from speculative to investment grade, said: "The upgrade reflects the country's strong economic prospects, external balance sheet, and its deep capital market, which supports a weak, but improving, fiscal position."
Moody's, another globally-known rating agency, raised India to investment grade in 2004; Fitch followed suit in August last year. S&P had downgraded India from investment grade in May 1991 when the country's foreign currency reserves had eroded to such an extent that it had just about enough to meet import bills for two weeks and was staring at a balance of payments crisis. The rating agency explained that it had considered India below investment grade until now because of the poor state of its public finances.
However, the combined fiscal deficit of the state and central governments at about 7.5% of GDP was still a tad too high for comfort, S&P added. Even now, total debt is equal to 85% of annual output and 35% of revenues are used to pay interest on loans.
The economic reforms flagged off in 1991 did address some of these issues but progress tapered off from the mid-nineties. It was only after 2000 that governments have managed to rein in profligacy and bring some order to borrowing and spending.
"Fiscal vulnerabilities are now being addressed structurally," Ping Chew, S&P's managing director of corporate and government ratings for Asia, said. "We are a little more sure that these (fiscal consolidation) trends are more entrenched, both from a policy and economic growth angle. It is only in the last few years that India's finances have been fixed," Chew said.
The Indian economy has grown at an average rate of over 8% in the past three years, fuelled by demand for goods and services from an increasingly affluent middle class and booming industry. S&P expects the $854 billion (latest IMF estimates) economy to become the third fastest growing in Asia Pacific this year. It is currently the fourth-largest behind Japan, China and Korea.
Global investment banker Goldman Sachs had last week raised its own forecast of India's growth. It now expects the country to grow at over 8% until at least 2020 and become the second largest economy, ahead of the US and behind China by 2050.
The upgrade in sovereign rating will boost India's chances to attract much needed investments into highways, ports, education and healthcare. The country has been a lucrative destination for portfolio investors who have poured in over $8 billion into Indian shares and bonds this financial year. The S&P re-rating will likely remove doubts in the minds of those investors who take credit rating as the last word.
For the record, S&P itself has been a keen investor in the fast-growing rating and advisory business in India for several years now. The agency, however, warns that the ratings on India remain constrained by the country's weak fiscal profile, especially its high government debt burden and deficit, which is still one of the worst among all rated sovereigns.
"Further rating improvements will depend on sustained prudent fiscal policy that leads to a decline in government debt and interest burden, and further reforms that lift the growth prospects and income levels," Chew said.
http://timesofindia.indiatimes.com/SP_raises_Indias_sovereign_rating/articleshow/1541039.cms
