S&P reaffirms India's sovereign rating at BBB- with a stable outlook

The Union finance ministry on Tuesday said global ratings agency Standard and Poor’s (S&P) had reaffirmed its sovereign credit rating of India at BBB- and maintained its outlook at “stable”. This comes less than a month after Moody’s downgraded India’s outlook to “negative” from “stable”. 

However, at the time of writing, a representative of CRISIL, S&P’s Indian subsidiary, confirmed that while a research note on India’s sovereign ratings was expected, it had not been released as yet. 

The representative could not confirm whether the report would be released on Tuesday or Wednesday (Indian time).

A senior government official told Business Standard S&P had informed officials in the Department of Economic Affairs about this earlier in the day. This is a norm, as ratings agencies are known to inform the government before releasing a report on sovereign ratings and outlook.

“S&P has reaffirmed the sovereign rating of India at BBB- with a stable outlook. They have stated that India’s economy continues to achieve impressive long-term growth rates despite a recent deceleration. S&P expects the Indian economy to continue to out-perform its peers and that the growth will remain strong over the next 2 years,” Economic Affairs Secretary Atanu Chakraborty said on his official Twitter account.

Additionally, in a press release, the ministry said according to S&P, the current economic slowdown was cyclical rather than structural.

“They (S&P) expect the economy to continue to outperform its peers on the back of rising domestic demand and strong demographics,” the ministry said. “They have maintained a stable outlook on the basis of their expectation that over the next two years the growth will remain strong and India will maintain its sound net external position and fiscal deficit will remain elevated but broadly in line with their forecast,” it said.

S&P’s reiteration of India’s rating and outlook is good news for the government as it fights multiple fires on the economic front.

Last week, the official data showed that gross domestic product (GDP) rose 4.5 per cent for the July-September quarter. This was a 26-quarter low and even worse than the 5 per cent in the April-June quarter.

What is more alarming is that manufacturing contracted by 1 per cent in the September quarter, down from 5 per cent growth in the previous quarter. Worse, nominal GDP growth slipped to 6.1 per cent, the lowest in nearly two decades. 

The investment rate in Q2 stood at 27.6 per cent, the lowest in 11 quarters. What added to the glut of bad news was that for April-October, the Centre has breached its fiscal deficit target for the full year.

While the government maintains the economy has bottomed out and that a recovery is expected from the October-December quarter, the available official data so far for October is not encouraging.

The output of the eight core sectors of the economy witnessed historically high levels of contraction in October. This is expected to impact overall industrial production because of the index of industrial production, which had contracted by 4.3 per cent in September, nosediving to an eight-year low.