{"id":33742,"date":"2018-10-30T14:14:39","date_gmt":"2018-10-30T08:44:39","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=33742"},"modified":"2018-10-30T14:14:39","modified_gmt":"2018-10-30T08:44:39","slug":"sp-stands-pat-on-its-rating","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/sp-stands-pat-on-its-rating\/","title":{"rendered":"S&#038;P stands pat on its rating"},"content":{"rendered":"<p><a href=\"http:\/\/www.thehindu.com\/todays-paper\/tp-business\/sp-stands-pat-on-its-rating\/article20824521.ece\"><strong>S&amp;P stands pat on its rating<\/strong><\/a><\/p>\n<p><strong>Context<\/strong><\/p>\n<p>Standard &amp; Poor\u2019s (S&amp;P) retained its BBB- rating for India\u2019s sovereign with a \u2018stable\u2019 outlook, belying expectations that it may take a cue from rival Moody\u2019s, which upgraded the country\u2019s credit rating for the first time in 13 years<\/p>\n<p><strong>Factors cited by S&amp;P<\/strong><\/p>\n<ul>\n<li>S&amp;P cited India\u2019s low per capita income, the sizeable fiscal deficit and high general government debt as factors that continue to weigh down the country\u2019s credit profile and reiterated its stable outlook \u2014 indicating that the rating is unlikely to see a change in the near future.<\/li>\n<\/ul>\n<p><strong>BBB- rating<\/strong><\/p>\n<ul>\n<li>A BBB- rating denotes the lowest investment grade rating for India\u2019s sovereign debt.<\/li>\n<li>Despite one-off factors like demonetisation and the introduction of the Goods and Services Tax denting growth for two quarters, S&amp;P expects India\u2019s economy to grow robustly over the two-year period from 2018-20 with foreign exchange reserves rising further.<\/li>\n<\/ul>\n<p><strong>Rationale for the Rating: Low wealth levels<\/strong><\/p>\n<ul>\n<li>Ratings are constrained by India\u2019s low wealth levels, measured by GDP per capita, which estimate at close to $2,000 in 2017, the lowest of all investment-grade sovereigns that S&amp;P rates<\/li>\n<li>India\u2019s GDP growth rate is among the fastest of all investment-grade sovereigns, and\u00a0 S&amp;P expects real GDP to average 7.6% over 2017-2020<\/li>\n<\/ul>\n<p><strong>Moody\u2019s Rating<\/strong><\/p>\n<ul>\n<li>By contrast, Moody\u2019s had raised India\u2019s sovereign rating by one notch, citing the country\u2019s high growth potential compared with similarly rated peers and economic and institutional reforms that had been undertaken or were in the pipeline<\/li>\n<li><strong>Key difference:<\/strong> S&amp;P would like to see the results of the reforms initiated before a ratings revision while Moody\u2019s has taken the call based on the reforms initiated<\/li>\n<\/ul>\n<p><strong>Electoral gains<\/strong><\/p>\n<ul>\n<li>S&amp;P said the government\u2019s reform agenda could be bolstered by electoral gains for the ruling coalition<\/li>\n<\/ul>\n<p><strong>Reforms Noted<\/strong><\/p>\n<ul>\n<li>Reforms to address long-standing impediments to the country\u2019s growth\u2019 such as GST, the Bankruptcy Code and a framework for resolving bad loans while recapitalising state-owned banks, S&amp;P also referred to the government\u2019s focus on improving the ease of doing business as a positive for the investment climate<\/li>\n<\/ul>\n<p><strong>Teething Problems<\/strong><\/p>\n<ul>\n<li>The July 1, 2017, introduction of the GST, which combines the central, state, and local-level indirect taxes into one, has also led to some one-off teething problems that have dampened growth<\/li>\n<\/ul>\n<p><strong>In the medium term<\/strong><\/p>\n<ul>\n<li>In the medium term, the growth will be supported by the planned recapitalisation of state-owned banks, which is likely to spur on new lending within the economy<\/li>\n<li>Public-sector-led infrastructure investment, notably in the road sector, will also stimulate economic activity, while private consumption will remain robust<\/li>\n<li>The removal of barriers to domestic trade tied to the imposition of GST should also support GDP growth<\/li>\n<\/ul>\n<p><strong>Fallacious arguments by S&amp;P?<\/strong><\/p>\n<ul>\n<li>Chief economic adviser at the State Bank of India, said S&amp;P\u2019s rating action was not unexpected going by history but questioned its comments on India\u2019s per capita income<\/li>\n<li>\u00a0The argument given by S&amp;P that India has low per capita income which is acting as a detractor from the sovereign rating upgrade, is fallacious as Indonesia which was upgraded seven times between 2002 and 2011 had a low per-capita GDP of $1,066 in 2003 when its credit rating was upgraded and India\u2019s GDP per capita is now $1,709.4<\/li>\n<\/ul>\n<p><strong>Capital Infusion needed for PSBs<\/strong><\/p>\n<ul>\n<li>The rating agency estimated public sector banks would need a capital infusion of about $30 billion to make large haircuts on loans to viable stressed projects and meet the rising capital requirements under the Basel III norms<\/li>\n<\/ul>\n<p><strong>Constraints on India\u2019s Rating<\/strong><\/p>\n<ul>\n<li>The bank capitalisation program and the planned ramp-up in public-sector-led infrastructure investments as well as persistent fiscal deficits at the State level would have a bearing on India\u2019s large general government debt and overall weak public finances, \u00a0these continued to constrain India\u2019s ratings.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>S&amp;P stands pat on its rating Context Standard &amp; Poor\u2019s (S&amp;P) retained its BBB- rating for India\u2019s sovereign with a \u2018stable\u2019 outlook, belying expectations that it may take a cue from rival Moody\u2019s, which upgraded the country\u2019s credit rating for the first time in 13 years Factors cited by S&amp;P S&amp;P cited India\u2019s low per&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/sp-stands-pat-on-its-rating\/\">Continue reading <span class=\"screen-reader-text\">S&#038;P stands pat on its rating<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-33742","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704904115},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/33742","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=33742"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/33742\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=33742"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=33742"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=33742"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}