New GDP numbers don't change India's lowest grade, says ARC Ratings

But remains positive on the expected reforms in the country

ARC Ratings, one of the agencies that have given India the lowest investment grade, says the country's higher economic growth — as revealed by the new gross domestic product (GDP) methodology — will not alter its ratings for the economy. The agency, however, says it has high hopes from the Indian economy's performance. ARC had in December assigned its first ever rating to India, of BBB+, a notch above the junk grade. The ratings also reflected weaknesses in government finance, including a large debt level and constrained revenue base, the agency said in a statement in New Delhi.     

The data revisions do not alter the size of nominal GDP, and revenue yield, a key government debt ratio that the agency looks at, remains low. India's ratio of government revenues to GDP is just about 20 per cent, a level seen as insufficient, given the expenditure demands on the government and massive social and physical infrastructure needs, according to the agency.

The recent data revisions reveal much faster growth for the country's economy in the financial year ended March 2014 - at 6.9 per cent, significantly higher than the original figure of 4.7 per cent. Similarly, GDP growth for 2012-13 has been revised from 4.7 per cent to 5.1 per cent.

However, the agency expects India's economy to perform better in the times ahead. "The new data do not change our already positive expectations for the performance of the economy," says Joan Feldbaum-Vidra, head of sovereigns at ARC Ratings.

The agency expects the Narendra Modi-led central government to pursue further reforms. "The revisions to GDP do not alter the agency's fundamental view on India which reflects our expectation for faster-paced growth sparked by Prime Minister Narendra Modi's ambitious reform agenda," ARC Ratings said.

Feldbaum-Vidra pinned her hopes on further supply-side reforms in India. "We are optimistic that many supply-side reforms will be implemented, and especially that the goods and services tax, slated to be introduced on April 1, 2016, will open up the internal market without too many exemptions," she said. "Private investment should also pick up in response to India's rosier prospects."