S&P Says India's Investment-Grade Rating Safe Until Election
Will Cut Debt to Speculative Grade if Next Government Doesn't Look Capable of Reviving Growth, Ratings Firm Warns
Nov. 7, 2013 6:11 a.m. ET
NEW DELHI—Standard & Poor's has put a
safe tag on India's investment-grade rating until next year's general
election, giving a reprieve to authorities as it placed the onus of
stimulating economic activity on the next government.
S&P Thursday reiterated its rating on the country's long-term debt at BBB-minus, a notch above the junk category. It said India's low overseas debt, ample foreign-exchange reserves as well as an increasingly credible monetary policy and robust democracy support the rating.
But these strengths are counterbalanced by weak public finances and lack of progress on structural reforms, the ratings firm said while maintaining its "negative" outlook, which indicates a greater chance of a rating downgrade than an upgrade. It also warned of a downgrade to speculative grade if the next government "does not appear capable of reversing India's low economic growth."
India is expected to go to polls by May.
Prime Minister Manmohan Singh's coalition government has been working under a constant threat of a rating downgrade as economic growth has slowed, inflation is high and spending on welfare programs is straining its already-wide budget deficit.
A rating downgrade would indicate a greater risk of defaulting on debt repayments and increase the cost of funds for the government and companies, as well as delay any rebound in the economy, a prospect that would be a big negative for any government facing elections.
"We think this commentary is marginally positive, with S&P almost ruling out a downgrade before the national elections," Barclays BARC.LN -0.42% said in a note on the S&P decision. "S&P has effectively given the next government a window to usher in economic reforms."
The current government has taken a series of reform measures over the past year, such as allowing greater foreign investments and fast-tracking industrial projects to help stimulate growth. But an economic recovery still hasn't set in.
Most recent government data show the economy grew just 4.4% in April-June, the slowest quarterly growth pace since the first quarter of 2009 when it was reeling because of the contagion effects of the global financial crisis. The rate is also less than half the 9% expansion the economy was recording as recently as in 2011.
The government's wide budget deficit has been another reason for worry. Although it managed to narrow the deficit to 4.9% of gross domestic product in the fiscal year ended March 31 from 5.7% the year before, the gap still remains much above the 3% level that authorities say is acceptable.
Pressure to increase populist spending in the run-up to elections and weakening revenue growth because of the economic slowdown have raised concerns that the government may overshoot the 4.8% target for the current fiscal year, despite repeated assurances by Finance Minister Palaniappan Chidambaram that the target would be met.
All the three global ratings firms—S&P, Moody's and Fitch—have their lowest investment-grade ratings on India.
Moody's and Fitch have a "stable" outlook on the ratings, with the latter lifting it from "negative" in June.
On Thursday, S&P flagged the risks from the slowing economy, which it said "complicates the government's debt dynamics and ability to implement reforms."
"If we believe that the agenda [of the next government] can restore some of India's lost growth potential, consolidate its fiscal accounts, and permit the conduct of an effective monetary policy, we may revise the outlook to stable," S&P said.
Write to Anant Vijay Kala at anant.kala@wsj.com
Diesel price hike must for better GDP growth ahead:
Parikh According to Kirit Parikh, Rs 5 diesel price hike would increase inflation rate in next quarter but six quarters down the line it will be reduce inflation considerably and will boost the GDP growth.
S&P Thursday reiterated its rating on the country's long-term debt at BBB-minus, a notch above the junk category. It said India's low overseas debt, ample foreign-exchange reserves as well as an increasingly credible monetary policy and robust democracy support the rating.
But these strengths are counterbalanced by weak public finances and lack of progress on structural reforms, the ratings firm said while maintaining its "negative" outlook, which indicates a greater chance of a rating downgrade than an upgrade. It also warned of a downgrade to speculative grade if the next government "does not appear capable of reversing India's low economic growth."
India is expected to go to polls by May.
Prime Minister Manmohan Singh's coalition government has been working under a constant threat of a rating downgrade as economic growth has slowed, inflation is high and spending on welfare programs is straining its already-wide budget deficit.
A rating downgrade would indicate a greater risk of defaulting on debt repayments and increase the cost of funds for the government and companies, as well as delay any rebound in the economy, a prospect that would be a big negative for any government facing elections.
"We think this commentary is marginally positive, with S&P almost ruling out a downgrade before the national elections," Barclays BARC.LN -0.42% said in a note on the S&P decision. "S&P has effectively given the next government a window to usher in economic reforms."
The current government has taken a series of reform measures over the past year, such as allowing greater foreign investments and fast-tracking industrial projects to help stimulate growth. But an economic recovery still hasn't set in.
Most recent government data show the economy grew just 4.4% in April-June, the slowest quarterly growth pace since the first quarter of 2009 when it was reeling because of the contagion effects of the global financial crisis. The rate is also less than half the 9% expansion the economy was recording as recently as in 2011.
The government's wide budget deficit has been another reason for worry. Although it managed to narrow the deficit to 4.9% of gross domestic product in the fiscal year ended March 31 from 5.7% the year before, the gap still remains much above the 3% level that authorities say is acceptable.
Pressure to increase populist spending in the run-up to elections and weakening revenue growth because of the economic slowdown have raised concerns that the government may overshoot the 4.8% target for the current fiscal year, despite repeated assurances by Finance Minister Palaniappan Chidambaram that the target would be met.
All the three global ratings firms—S&P, Moody's and Fitch—have their lowest investment-grade ratings on India.
Moody's and Fitch have a "stable" outlook on the ratings, with the latter lifting it from "negative" in June.
On Thursday, S&P flagged the risks from the slowing economy, which it said "complicates the government's debt dynamics and ability to implement reforms."
"If we believe that the agenda [of the next government] can restore some of India's lost growth potential, consolidate its fiscal accounts, and permit the conduct of an effective monetary policy, we may revise the outlook to stable," S&P said.
Diesel price hike must
for better GDP growth ahead: Parikh
According to Kirit Parikh, Rs 5 diesel price hike would increase
inflation rate in next quarter but six quarters down the line it will be
reduce inflation considerably and will boost the GDP growth.
Read more at: http://www.moneycontrol.com/news/economy/diesel-price-hike-must-for-better-gdp-growth-ahead-parikh_980019.html?utm_source=ref_article
But it also warned that it could lower the rating within a year if it saw "continued policy drift."Read more at: http://www.moneycontrol.com/news/economy/diesel-price-hike-must-for-better-gdp-growth-ahead-parikh_980019.html?utm_source=ref_article
Write to Anant Vijay Kala at anant.kala@wsj.com
Diesel price hike must for better GDP growth ahead:
Parikh According to Kirit Parikh, Rs 5 diesel price hike would increase inflation rate in next quarter but six quarters down the line it will be reduce inflation considerably and will boost the GDP growth.
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