S&P Upgrades India's Credit Outlook to Stable

Global rating agency Standard & Poor's on Friday revised India's credit outlook to "stable" from "negative", acknowledging the improved political and economic environment in Asia's third largest economy. India's rating continues to remain at BBB minus, S&P said.

"India's improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management," the rating agency said in a statement.

"We believe the current administration will remedy, to varying degrees, the growth impediments--policy paralysis, energy supply bottlenecks, and administrative obstacles," it added.

S&P's rating boost comes at a time when Prime Minister Narendra Modi will be meeting CEOs of several Fortune 500 companies in the US to hard sell India as an investment destination.

(Read: PM Modi to Hard Sell India Story to Fortune 500 CEOs in US Visit)

Since coming to power in May 2014, the new government has liberalised defense manufacturing and insurance sectors and has vowed to simplify labour laws and implement goods and services tax (GST) quickly to boost growth.

Between April and June 2014, India registered its fastest growth in nine quarters and the new government has vowed to keep the fiscal deficit under control at 4.1 per cent of GDP.

"We expect the new administration to adhere to its stated fiscal consolidation program, even though we acknowledge that planned revenues may not fully materialize and subsidy cuts may be delayed," S&P said.

The announcement led to a sharp pullback in equity markets and rupee. The Sensex snapped a 3-day losing streak today, rising 157 points. The rupee also jumped 60 paise to 61.02 from a low of 61.62 per dollar. (Read the full story here)

Dr. Shubhada Rao, Senior President & Chief Economist at Yes Bank, told NDTV that the revision is a validation of macro-stability over the last one year.

"Pre-September 2013 was the time, when India was in extreme turbulence, the currency was volatile. Most of these concerns have been addressed and the growth prospects are looking better," she added. (Read what other experts said)

S&P said it could raise the rating if the economy grows faster and fiscal, external, or inflation metrics improve. It warned that it may lower the rating again if the government's structural reform agenda stalls.

Standard & Poor's and Fitch Ratings had lowered their outlook on India to "negative" in 2012, warning the country of a possible rating downgrade to "junk". However, Fitch had last year returned India's sovereign outlook to stable. (Read: Rating Upgrade Around the Corner for India, Says Bank of America)