Higher country ratings are important to attract investment and raise investors’ confidence
GN Bureau | March 2, 2015
Despite finance minister Arun Jaitley’s good budget the country’s ratings are not likely to change due to subsidies, debt and missing reforms.The budget has in fact slowed the pace of fiscal consolidation.
International ratings agency Standard & Poor's does not expect an upgrade to India's sovereign debt rating in the next year in the absence of substantial, quality reforms.
"India's 2015-2016 budget highlights the government's commitment to keeping the fiscal deficit low despite lower-than-expected revenue growth," S&P said in a statement on Monday.
"This commitment moderates the drag on sovereign credit support posed by the relatively heavy general government debt burden in India," it added. "Nevertheless, the debt burden and large budgetary subsidies could constrain the speed of improvements in India's credit metrics."
The ratings agency said the quality of fiscal consolidation was not as good as it could have been on structural front, after a deadline for cutting the fiscal deficit to 3 percent by a year was put off to 2017/18.
S&P currently rates India at "BBB-minus", its lowest investment grade rating, with a "Stable" outlook.
The credit rating of a country gives investors insight into the level of risk associated with investment in a particular country. A good sovereign credit rating is usually essential for developing countries in order to access funding in international bond markets.
The credit ratings also impact bonds in external debt markets and foreign direct investment.
“India needs to at least strengthen two of its macroeconomic metrics on growth, inflation and fiscal health,” said Kim Eng Tan, Senior Director, Asia-Pacific Sovereign Ratings for Standard & Poor's.
"However, again, (a) very big improvement is unlikely to come through in next year or so. We don't see the rating going up in the next year or so," Tan felt.
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