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After raising the outlook on India's rating to 'stable' last year, Standard & Poor's (S&P) said on Friday that further reforms by the Narendra Modi government, particularly on the subsidy front, could increase the chance of revising the rating, currently at the lowest investment grade.
"We expect political developments in a few Asia-Pacific sovereigns will become important factors in shaping credit trends in the next few years," S&P said in its recent analysis.
According S&P, the new regime in India has made changes and those were welcomed by investors. Further reforms that improve the investment climate and strengthen fiscal health in India could brighten long-term growth prospects, the rating agency said.
In India, under-investment in infrastructure has resulted in constraints on development, it said.
Diverting funds from subsidies to public investment and reducing barriers faced by businesses could unlock the growth potential and strengthen credit support for these sovereigns, it said.
Any chance of rating upgrade could be a big boost for the new government, as the previous United Progressive Alliance regime could not succeed in convincing these agencies to up India's rating. In fact, S&P had downgraded the outlook to 'negative' from 'stable'. In September 2014, after the new government came, the rating agency restored it to 'stable'.
Besides S&P, Moody's and Fitch also has assigned India the lowest investment grade with stable outlook. The government has committed itself to the fiscal road map, which mandates the government to lower fiscal deficit from 4.6 per cent in FY14 to 4.1 per cent of the GDP in the current financial year, and further to 3.6 per cent in FY16 and three per cent in 2016-17.
Finance minister Arun Jaitley has announced in Davos that the government will undertake subsidy reforms in cooking gas and kerosene.
