Ratings to face stress if reforms stray; GST crucial: S&P

Says if GST bill is passed in the forthcoming Winter Session of Parliament it will be a credit positive

Expressing concern over slowdown in the pace of reforms, Standard & Poor's has said India's rating could come under stress if government fails to pursue reforms agenda and overshoots fiscal deficit target.

It ruled out a rating upgrade for the country in the next 12-18 months but said that in case the government is able to get the Goods and Services Tax (GST) bill passed in the forthcoming Winter Session of Parliament, it would be a credit positive.

"GST will bring in a simple tax regime and a business friendly environment. Passage of GST bill will be credit positive for India. It would indicate that government's reform initiative is picking pace with a strong momentum," S&P's Rating Services India Sovereign Analyst Kyran Curry told PTI.

Reforms like land acquisition bill and GST have been stuck due to political logjam in Parliament.

"In our analysis, in past six months, the progress of reform has slowed down," Curry said while ruling out a rating upgrade over the next 12-18 months.

US-based S&P has assigned 'BBB-' rating on India with a stable outlook. 'BBB' is the lowest investment grade rating.

The global credit rating agency would formally review India's ratings in November 2016, but would keep a close watch on the upcoming Budget to see how the government plans to maintain the deficit target and go ahead with the reforms, Curry said.

"The ratings could come under stress if we see that government is backing away from reform commitment and fiscal deficit is not in control," Curry said.

Although government plans to roll out GST, billed as the most comprehensive indirect tax reform since Independence, from April 1, 2016, the date looks difficult as the Constitution Amendment Bill is stuck in the Rajya Sabha where the ruling NDA does not have a majority.

With the Winter Session beginning on November 26, the NDA has to work out a strategy to seek Congress' support for the passage of the legislation.

According to estimates, implementation of GST could boost India's GDP by about 2 per cent.

Curry said S&P could consider a rating upgrade if fiscal deficit is brought down, debt to GDP ratio is below 60 per cent and savings are properly channelised.

Finance Minister Arun Jaitley has however already postponed the fiscal consolidation roadmap by a year in the Budget for 2015-16.

As per the revised roadmap, fiscal deficit is to be brought down to 3.9 per cent of GDP in 2015-16, 3.5 per cent in 2016-17 and 3 per cent by 2017-18. The deficit in 2014-15 was 4 per cent of GDP.

Several rating agencies and brokerages have said that implementation of the recent Pay Commission recommendations could hurt India's fiscal deficit even as the government is confident of meeting the target.

The 7th Pay Commission has last week recommended increase in remuneration of about one crore government employees and pensioners, which is estimated to impose an additional burden of Rs 1.02 lakh crore in 2016-17.

The new pay scales, subject to government's acceptance, are to take effect from January 1, 2016.