India needs some macro improvements for a ratings upgrade: Kim Eng Tan, S&P

ET Now caught up with Kim Eng Tan, Senior Director, APac Sovereign Ratings, S&P, for his macroeconomic outlook on India. Excerpts:

ET Now: Your article in the Economic Times says that for an upgrade India needs to strengthen at least two of its macroeconomic matrix. Were you disappointed with what came out in the Budget 2015?

Kim Eng Tan: I would not say that we are disappointed. The Budget seems a reasonable one. But in terms of credit rating, India is still relatively weak. That's why I said there was need for some macro improvement.

India needs to push reforms ahead to allow GDP growth to remain relatively strong for a sustained period of time. There is also the need for the fiscal or inflation matrix to improve. If these two conditions are met, we are very likely to see a rating upgrade for India.

ET Now: Is there also a marginal risk of revising India's ratings outlook downwards? If so, how pronounced is that risk?

Kim Eng Tan: One scenario where a downgrade looks possible for India is if the government stalls its reform efforts. If we do not see reforms that that revive investor confidence, then there could be a case for a sovereign ratings downgrade.

ET Now: Growth might well get back on track, although the situation is unpredictable right now. Do you believe that FY17 — when we target 3.6% or a level lower than that — is when the first rating upgrade could come in?

Kim Eng Tan: It depends on how the other credit matrices perform. The key matrix that we look at in terms of fiscal outcome is the next general government debt level, which is now in the 60s. We also look at the fiscal performance matrix which is related to the budget number.

We do see significant improvement in these two matrices, which will lead to a better confidence on our part that strong growth will persist in the future. That could lead to an upgrade. But at this point, it is rather early to speculate on it.