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Standard & Poor’s (S&P) has noted that India has the lowest level of prosperity among all investment-grade economies, explaining why it has not upgraded its ratings. “Of all investment-grade sovereigns, India displays by far the lowest level of prosperity. At about $2,000 per capita, its income level is a third lower than Morocco’s and the Philippines’,” S&P stated. Last week, Moody’s Investors Service had upgraded India’s rating by a notch to two grades above junk, citing the many reforms undertaken by the Narendra Modi government. But the analysis by S&P has been in sharp contrast to that of Moody’s, which said that while India’s general government debt was higher than the median debt level of countries ranked similarly, “the impact of the high debt load is already mitigated somewhat by the large pool of private savings available to finance government debt.” S&P had assigned India the lowest investment grade with a stable outlook. However, it acknowledged that economic growth in India has been strong. “Fast economic growth has been the reason why economic support for this rating (lowest investment grade) has been as strong as it is.
Without this economic growth story, we would have assessed economic support at a weaker level and the rating would probably not be investment grade.” The agency had last upgraded India by a notch in January 2007 to BBB- up from junk rating of BB+. “All in all, we still see rather healthy prospects but there are significant headwinds and the credit metrics are unlikely to materially improve in the next one to two years,” S&P said. Investment hasn’t picked up much in India in recent years. S&P also said “for an upgrade, India would have to address its weak fiscal balance sheet and weak fiscal performance. Year after year, the fiscal deficit remains relatively large, with the interest burden and subsidies taking a big chunk of government spending. So there’s not a lot of room for the government to manoeuvre, despite pressing infrastructure needs. A potential rating grade is likely to come from improved fiscal performance.”