US-based international market forecasting agency Standard & Poor’s (S&P) on Wednesday stuck to its current outlook on India, refusing to modify the current ‘BBB-’ rating owing to the weak state of public finances in the country.
The agency said that the low rating had been maintained as it did not expect the Indian government to be able to reduce the level of government debt below 60% of the GDP.
It did however issue a stable outlook citing India’s sound external position and improving monetary position. "The stable outlook balances India's sound external position and inclusive policy-making tradition against the vulnerabilities stemming from its low per-capita income and weak public finances," S&P said.
Forecasting the Indian economy to grow to 7.9% in 2016 and 8% in 2016-18, with a current account deficit of 1.4% of the GDP, S&P also said that the Reserve Bank of India is likely to meet its inflation target of 5% in March 2017.
While stating that the ratings could move upwards if government reforms sufficiently improved the country’s fiscal performance, S&P cautioned that downward pressure on the ratings could emerge if stalled reforms retarded growth, or if inflation targets are not met by the monetary policy committee, which sets interest rates.
Reacting to the low investment rating, the central government on Wednesday said there was a ‘disconnect’ between S&P's ratings and the perception of investors.
Economic Affairs Secretary Shatikanta Das said the major reforms undertaken by India were unique given their size and their not being reflected in the ratings called for “introspection” on the part of S&P.
"If you compare the various factors the report talks about, is there any other economy that equals this? So if there is no improvement, it's a matter for the rating agency to put a question to itself and perhaps undertake a kind of introspection," Das said.
Das cited building a strong external position, inflation checks and the introduction of structural reforms such as the GST and the bankruptcy code as progressive steps taken by the government.
He also added that global investors see India as highly ‘under-rated’.
S&P’s low ratings come on the back of a similar forecast by another international ratings agency Moodys.