Address macroeconomic issues, say rating agencies to next govt

All the three agencies have assigned India's economy the lowest investment grade

Rating agencies Standard & Poor’s (S&P), Moody’s Investors Service and Fitch Ratings, which kept the outgoing United Progressive Alliance government on tenterhooks, warning of a downgrade India’s rating to junk, on Friday said they expected the Narendra Modi-led National Democratic Alliance regime to address the macroeconomic issues on which their grading was based.

All three agencies have assigned India’s economy the lowest investment grade.

“Future assessments of the sovereign credit profile (of India’s economy) will depend on developments in the government’s fiscal position, the regulatory constraints on investment and the output and growth in social and physical infrastructure,” said Moody’s vice-president (sovereign risk group), Atsi Seth. She added changes in the credit profile didn’t depend on growth in gross domestic product (GDP) alone.

She said she expected GDP growth at about five per cent this year, with the possibility of a sub-normal monsoon posing downside risks. In the two previous financial years, growth in India’s economy was sub-five per cent.

S&P analyst Takahira Ogawa said, “What the next government says and does in the coming months is crucial to boosting confidence in policy settings and the economy.” If confidence rose, investment and consumption could strengthen, after being held back by the uncertainty surrounding the elections, Ogawa said. The challenge for the next government was to regain fiscal prudence in a sustainable manner, he added.

He underlined the need to implement the Goods and Services Tax to help stabilise the government’s revenue and improve prospects of economic growth.

Thomas Rookmaaker, Fitch Ratings sovereign ratings group director, said a government with a clear mandate increased the chances of decisive policy action to address economic challenges. “We will see whether the new government takes those chances,” Rookmaaker said.

Fitch said from a sovereign credit perspective, the most important issue before the new government was to get growth back to higher and sustainable levels. This, it added, would require a strong pick-up in investment. “It will take some time to get clarity on the new government’s broad economic strategy. One key near-term data point will be the next government’s first Budget, expected in July,” Rookmaaker said.