NEW DELHI: S&P Global Ratings has ruled out an upgrade for India over the next two years even as it affirmed the stable outlook on the country’s ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings.

“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 in a statement on Wednesday laying down the conditions for a ratings upgrade.

The finance ministry, which has been making a case for an upgrade to the ratings agency citing India’s improved fundamentals, expressed unhappiness at the decision.

“The report of S&P says all the right things-…with all this if the rating has not been improved, it’s a matter which doesn’t bother us so much but I think it’s a question which calls for introspection among those who do the rating,” economic affairs secretary Shaktikanta Das said adding government will continue to adhere to the path of reforms.

There is a disconnect between what the investors are saying and what the ratings are saying, Das said mentioning his interactions with investors in Canada and the US.

Ratings agency recognise the progress made by India, but the country’s weak fiscal position and debt profile are seen as the biggest constraint on an upgrade.

S&P said a case for ratings upgrade could be made “if the government’s reforms markedly improve its general government fiscal outturns and, with them, the level of net general government debt so that it falls below 60% of GDP.” The ratings agency see India’s growth picking up modestly to 7.9% in 2016 and 8% on average over 2016-2018. It expects the RBI to achieve the inflation target of 5% by March 2017.


S&P notes that India has made progress in passing laws to address long-standing impediments to the country’s growth, mentioning the goods and services tax (GST) that will replace complex and distortive indirect taxes.

Other reforms noted by S&P include strengthening the business climate through simpler regulations and improved contract enforcement and trade, boost to labour market flexibility, and reforms of the energy sector.

“We believe these measures, supported by India’s well-entrenched democracy, will promote greater economic flexibility and help redress public finances over time,” the agency said.


S&P said India’s external position is a source of strength for credit rating, mentioning that country has only limited reliance on external savings to fund its growth.

It expects a moderate current account deficit of 1.4% in 2016 (2.1% in 2015) that it expects can be funded mostly with inflows without adding to debt.

The Reserve Bank of India’s foreign reserves reached US$369 billion as of September 2016 (or four-and-a-half months of current account payments, $352 billion, in September 2015), S&P noted. “The authorities also maintain contingent financing facilities of $68 billion through bilateral swaps and contingency reserve arrangements.”


India’s low GDP per capita, pegged at $1,700 in 2016, is seen as one of the two major constraints to an upgrade, other being the weak fiscal profile. The government has little ability to undertake countercyclical fiscal policy given its current debt burden to boost growth and per capita income.

“India’s high fiscal deficits have led to the accumulation of sizable general government borrowings (about 69% of GDP, net of liquid assets) and debt servicing costs (over a quarter of general government revenue),” S&P said penciling in only a modest decline in net general government debt over the next few years.

“This debt load and India’s overall weak public finances are additional rating constraints,” S&P noted in the statement. “Hence, overall, we believe public finances are set to remain key rating constraints for some time.”

S&P estimates estimate public-sector banks need capital infusion of about $45 billion (2% of GDP) by 2019 against government commitment of $11 billion.