- S&P rates India at BBB-minus - the lowest investment-grade rating
- The ratings agency expressed concern over high government debt
- It welcomed RBI's action to reduce inflation
Standard & Poor's affirmed India's sovereign ratings, welcoming the country's policy stability and improved monetary credibility, but ruled out any upgrade for this year or in 2017 because of weak public finances and low per capita income.
The stance comes despite a push for a ratings upgrade by government officials, who have argued the country has kept its fiscal deficit in check and passed a slew of major economic reforms including a revamp of the goods and services tax (GST).
The government today slammed global rating agencies for not upgrading India's sovereign rating despite a slew of reforms, saying they need to do some "introspection" as investors globally feel the country is "under-rated".
"If the rating has not been improved, it's a matter which doesn't bother us so much. It's a question which calls for an introspection among those who do the rating," said Economic Affairs Secretary Shaktikanta Das.
Mr Das cited various steps taken by the government in the last two years, including controlling inflation and structural reforms like GST and bankruptcy.
"There is a disconnect, therefore, between what the investors are thinking of, what they have in their mind, and (what) the rating agencies are concluding. I think somewhere there is a disconnect," he said.
S&P today stuck to its rating of "BBB-minus" with a "stable" outlook, saying it would need to see more efforts to lower the country's net general government debt level to below 60 per cent of gross domestic product.
"The stable outlook balances India's sound external position and inclusive policymaking tradition against the vulnerabilities stemming from its low per capita income and weak public finances," S&P said in a statement.
"The outlook indicates that we do not expect to change our rating on India this year or next, based on our current set of forecasts."
S&P said its stance was based on its expectations that fiscal revenues would not rise enough to meaningfully reduce the country's deficit over the medium term, while noting the government's borrowing remained "high".
The ratings agency also expressed concerns the government could delay subsidy cuts, while noting the country's banking sector would likely need capital infusions of about $45 billion by 2019, or 2 per cent of the country's GDP, to meet global Basel III capital norms.
"Overall, we believe public finances are set to remain key rating constraints for some time," S&P said.
Still, S&P welcomed government efforts to "address longstanding impediments to growth," including the passage of GST and other reforms such as in labour and the energy sector.
It also welcomed the Reserve Bank of India's action to reduce inflation and enhance its "monetary policy credibility," including through the introduction of a committee to set interest rates and improve communication.
The rating agency expects India's economy to grow 7.9 per cent in 2016 with current account deficit at 1.4 per cent of the gross domestic product. It also expects the RBI to meet its inflation target of 5 per cent by March 2017.
Both S&P and Fitch Ratings currently rate India at "BBB-minus", the lowest investment-grade rating, with a "stable" outlook. Moody's Investors Service rates India at an equivalent "Baa3", but with a "positive" outlook.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
