NEW DELHI: In a huge sentiment booster for India, S&P on Friday revised India's credit outlook up to 'stable' from 'negative'. While the agency maintained India's rating at BBB-, the revision in outlook will serve to be a positive for India.
S&P said, "The outlook indicates government can implement fiscal & economic reform. Rating outlook revision shows improved political setting." "Political setting offers conducive environment for reforms. Government reform pick-up may let RBI draft effective policy," it said.
"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," S&P explained.
"We could raise the rating if the economy reverts to a real per capita GDP trend growth of 5.5% per year and fiscal, external, or inflation metrics improve. Conversely we may lower the rating if the government's structural reform agenda stalls such that economic growth does not accelerate, or fiscal and debt ratios fail to improve," S&P cautioned.
S&P expects the government to meet its stated fiscal consolidation path. "CAD has improved in recent years post gold import curbs. We see little foreign exchange or roll-over risk for the government," it added.
Commenting on same, Bimal Jalan told ET Now, "S&P upgrading India's outlook is a big positive. I am glad that S&P recognises India's potential to invest & grow." "India's FDI policy regime is stable which attracts investors," he added.
Spurred by a flurry of positive macroeconomic data and riding on the new-found optimism in the economy, PM Narendra Modi's government had pitched for a credit ratings upgrade. India's economy expanded at its fastest pace - 5.7% - in more than two years in the April-June quarter, had last year narrowly avoided a ratings downgrade to 'junk' status.
The finance ministry's pitch to the rating agency focused on three aspects - revival of growth, fiscal consolidation and effective inflation management. S&P earlier rated India as 'BBB-', the lowest in the investment grade, with a negative outlook. Moody's assigns a 'Baa3' rating on India, with a stable outlook. Fitch has affirmed India's long-term foreign and local currency issuer default rating (IDR) at 'BBB-' with stable outlook, indicating low default risk.
Ratings agencies typically look at economic parameters like fiscal deficit, Current Account Deficit (CAD), inflation and growth outlook, while deciding the investment grade for a country.
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