S&P affirms India’s rating at ‘BBB-minus’ with ‘stable’ outlook

Standard & Poor’s stuck with its “BBB-minus” sovereign rating and “stable” outlook for India on Friday, declining to follow Moody’s recent decision to upgrade the country’s rating, citing low income levels, high debt and weaker government finances.

Moody’s Investors Services had a week ago upgraded India’s credit rating to “Baa2” from “Baa3”, one notch higher than S&P’s current rating, citing progress on economic and institutional reforms would lift the country’s growth potential.

But in a statement, S&P said it was comfortable with its current rating, which leaves India at its lowest investment-grade standing, despite welcoming recent actions such as the unveiling of an ambitious national goods and services tax (GST), India’s biggest-ever tax reform.

“Sizable fiscal deficits, a high net general government debt burden, and low per capita income detract from the sovereign’s credit profile,” S&P said in a statement.

S&P has long maintained a more cautious approach than Moody‘s, having kept India at the current rating of “BBB-minus”, the lowest investment-grade, since 2007.

The agency did change its outlook to “stable” from “negative” in 2014, several months after Prime Minister Narendra Modi was elected with promises of ambitious economic and fiscal reforms, but has not budged even as the government has lobbied rating agencies hard for an upgrade.

In its statement on Friday, S&P said it welcomed government reforms, including the rollout of GST and a planned $ 32 billion capital infusion into its struggling state-run lenders, while predicting the country’s economy would “grow robustly” in 2018-2020.

But S&P reiterated its concerns about India’s gross domestic product (GDP) per capita income, saying on Friday it was “the lowest of all investment-grade sovereigns that we rate” at an estimated $ 2,000.

The ratings agency also said India’s general government revenue was “low”, at an estimated 22 percent of 2017 GDP, while noting “the large general government debt load and India’s overall weak public finances continue to constrain the ratings.”

S&P added it would need to see more evidence that government reforms would “markedly improve” the government’s finances and reduce its net general government debt to justify an upgrade – reiterating language it had used in affirming India’s rating late last year.

Fitch Ratings also currently rates India at “BBB-minus” with a “stable” outlook, in line with S&P’s ratings.

Reporting by Rafael Nam and Swati Bhat