S&P Revises India’s Credit Outlook from “Negative” to “Stable”

S&P Revises India’s Credit Outlook from “Negative” to “Stable”

Global rating agency Standard & Poor’s raised India’s credit outlook from “negative” to “stable,” raising chances of a prospective upgrade in the current sovereign credit rating of the country. In a statement issued by S&P, the credit rating agency said, “Our outlook revision reflects our view that India’s improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management.” It is to be noted that S&P’s current credit rating of India is BBB-minus whose outlook has been changed from negative to stable for a couple of years. In effect, the change means that the rating agency intends to maintain the current rating and the threat of a downgrade in rating has been averted for the time being.

It is also of significance that the change in rating outlook was announced on the eve of India’s Prime Minister Narendra Modi’s maiden visit to the US. It is common knowledge that the much-anticipated visit is now considered highly successful in terms of the confidence Narendra Modi was able to inspire in the US administration and business community with his reiterated stand to create conducive conditions in India for foreign investment and other business activities.

The change in rating outlook can lead to higher foreign inflows and the cost of borrowing is also expected to come down for Indian companies. It is worth noting that the sovereign ratings serve as a means of evaluating a country’s credit worthiness which can have a strong impact on any major investment decisions. Though the current improvement in outlook is a positive development, a lot needs to be achieved in order to ensure an upgrade in the credit rating from where it stands today.

In this context, these remarks by S&P may seem relevant, “Although the paralyzing effect of legislative gridlock can blunt government effectiveness, our outlook revision indicates that we believe the current government’s strong mandate will enable it to implement many of its administrative, fiscal and economic reforms.” The rating agency has clearly said that consistent growth in per capita GDP, reducing deficit and effective management and reduction of inflation can lead to an upgrade in the rating.

The improvement in rating outlook and a reaffirmation of PM Narendra Modi to bring in necessary reforms for a better investment climate has helped change the perception of the country as an investment destination in the global context. However, a lot depends on the realization of promises made by the NDA government in terms of major reforms, improvement in taxation regime and development and implementation of business friendly policies. If the government delivers and stands up to its stated commitments, there should be no reason for India to not establish itself as a global investment destination.