After rating agency Moody’s upgraded the country’s sovereign rating after a gap of almost 14 years, all eyes are now on the other two global rating agencies, Standard & Poor’s and Fitch Ratings.
Responding to a question from the media, on whether the government expects other agencies such as S&P and Fitch to upgrade, chief economic adviser Arvind Subramanian was reported as having said, “Let's hope they are not inconsistent amongst each other.” Dr. Subramanian had earlier observed that rating agencies followed inconsistent policies while rating India compared with their ratings for China.
According to analysts, the rating agencies may wait till the country’s fiscal position improves before initiating action.
“The question now is whether or not S&P and Fitch will follow suit,” Nomura wrote in a note to its clients. “Our bias is that they will likely wait for the government’s fiscal position to actually improve before making any changes [on outlook, followed by that for ratings], but directionally we believe India is headed the right way,” it added.
In October, S&P had said the country needed to improve its fiscal position for a rating upgrade. “For an upgrade, India would have to address its weak fiscal balance sheet and weak fiscal performance. India has one of the highest general government debt-to-GDP levels (68%) among emerging market sovereigns,” S&P had said at the time, while leaving the sovereign rating unchanged at the lowest investment grade with a stable outlook.
‘Deficit dampener’
“Year after year, the fiscal deficit remains relatively large with the interest burden and subsidies [taking] a big chunk of government spending. So, there's not a lot of room for the government to manoeuvre, despite pressing infrastructure needs. A potential rating upgrade is likely to come from improved fiscal performance,” it had added.
S&P declined to comment whether the agency was now considering a rating revision. “As of now, we have no comment to make on it,” a spokesperson said, responding to an email query. A query sent to Fitch Ratings remained unanswered.
