S&P keeps outlook on India stable, retains BBB- rating

Ratings agency takes favourable view on reforms being undertaken and praises Modi govt's fiscal consolidation drive

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.

S&P last changed India's rating in January 2007, to BBB-, which is the lowest investment grade rating for bonds. The outlook assigned then was 'stable'. It changed the outlook to 'negative' in 2009 and raised it to 'stable' in 2010.

In 2012, S&P again lowered the outlook to 'negative', which it raised to 'stable' soon after the Modi government assumed office in 2014. The rating, however, remained unchanged at BBB-.

This comes after a surprise upgrade by Moody's last week.

Moody's Investors Service upgraded India's sovereign credit rating for the first time in nearly 14 years on Friday, saying continued progress on economic and institutional reforms would boost the country's growth potential.

The agency lifted India's rating to Baa2 from Baa3 and changed its rating outlook to stable from positive as risks to India's credit profile were broadly balanced.

The upgrade, Moody's first of India since January 2004, moves the rating to the second-lowest investment grade, one notch higher than Standard & Poor's and Fitch, which have kept India just above 'junk' status for a decade and more.

The decision by Moody's is a plaudit for Prime Minister Narendra Modi's government and the reforms it has pushed through, and comes just weeks after the World Bank moved India up 30 places in its annual ease of doing business rankings.

Indian shares ended higher for a seventh straight session on Friday as IT firms gained, while bonds slid on market talk of a potential sovereign ratings upgrade by Standard & Poor's.

The benchmark 10-year bond fell, with yield rising as high as 7.04%.


S&P's India rating in the past

Long Term Rating				Short Term Rating
Foreign Currency		Local Currency		Foreign Currency		Local Currency
Date	Rating (Outlook)	Date	Rating	Date	Rating	Date	Rating
26-09-2014	(Stable)	30-01-2007	BBB-	30-01-2007	A-3	30-01-2007	A-3
25-04-2012	(Negative)
18-03-2010	(Stable)
30-01-2007	BBB-