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Standard & Poor's kept India's sovereign rating at the lowest investment grade of "BBB-minus" and a "stable" outlook, saying factors such as its sound external position were offset by low income and weak public finances. The agency added it does not expect to change its rating this year or in 2016 based on its current set of forecasts. The decision is bound to disappoint Prime Minister Narendra Modi's government, which has argued that India deserves a stronger rating after efforts to keep historically high fiscal deficits in check and to improve economic fundamentals.
Rival agency Moody's Investors Service in April also kept India at its lowest investment grade rating but raised its outlook to "positive" from "stable", citing policymakers' efforts to lift economic growth. Like Moody's, S&P welcomed measures to improve the business climate, labour flexibility and the energy sector. But it noted fiscal challenges, such as in generating revenue and controlling spending on subsidies.
"Although we expect the new administration to pursue its stated fiscal consolidation programme, we foresee that planned revenues may not fully materialise and subsidy cuts may be delayed," S&P said in a statement on Monday. "Overall, we believe public finances are set to remain key rating constraints for some time." Fitch Ratings also rates India at "BBB-minus" with a "stable" outlook.
India is seen as having better economic fundamentals than many of its emerging market peers, thanks to foreign exchange reserves of around $350 billion and efforts to keep its current account and budget deficits in check. Brazil, for example, was downgraded to "junk" by S&P in September, underscoring the deterioration of its economy and public finances. S&P said India's rating reflected its "sound" external profile and improved monetary credibility, including the adoption of inflation targetting and the move to set up a monetary policy committee to decide on interest rates. The agency expects India's economy to grow 7.4 percent this year and average "just under" 8 percent from 2015 to 2018, but sees ratings constrained by low per capita income, of $1,700 this year.

Copyright Reuters, 2015

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