S&P affirms India’s 'BBB-/A-3' sovereign rating; outlook stable

Mumbai: S&P Global Ratings affirmed 'BBB-' long-term and 'A-3' short-term unsolicited foreign and local currency sovereign credit ratings on India on Wednesday, and said the outlook on the long-term rating is stable.

The ratings agency said India’s ratings reflect the country's above-average real GDP growth, sound external profile, and evolving monetary settings. India's strong democratic institutions promote policy stability and compromise, and also underpin the ratings.

These strengths are balanced against vulnerabilities stemming from the country's low per capita income and consistently elevated fiscal deficits that contribute to high general government debt, net of liquid assets, it added.

“While risks to India's long-term growth rate are rising, ongoing economic reforms, if executed well, should keep the country's growth rate ahead of peers,” S&P said in a release.

“The economic hit from Covid-19 will exacerbate India's weak fiscal settings. We expect a materially larger fiscal deficit this year, followed by consolidation over the next three years,” it added.

The ratings agency said the stable outlook reflects its expectation that India's economy will recover following the containment of the Covid-19 pandemic, and the country will maintain its sound net external position.

The stable outlook also assumes that the government's fiscal deficit will recede markedly following a multi-year high in fiscal year 2021, it added.

Earlier this month, Moody's Investors Service downgraded India's foreign-currency and local-currency long-term issuer ratings to Baa3 from Baa2, citing in its view the country's policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth.