You are here: Home » Budget » Run-up » Economy
Business Standard

Fiscal deficit, low income constrain India's rating: S&P

The agency termed the 'governance effectiveness' as a 'neutral credit factor'

Press Trust of India  |  Mumbai 

Days ahead of the Union Budget, global rating agency Standard & Poor's today warned that India's weak fiscal and debt indicators, coupled with the low income levels, "constrain" the sovereign rating.

"India's low income levels and weak fiscal and debt indicators constrain the country's credit profile," S&P said in a note..

Read our full coverage on Union Budget

Although it said that last year's election results have created a conducive environment for reforms with political stability, the agency termed the "governance effectiveness" as a "neutral credit factor".

S&P said higher growth in real per capita GDP, stronger fiscal/debt metrics and an improved external position as well as monetary policy setting are essential to enhance the current 'BBB' rating with a stable outlook.

"The government's ability to fulfil its promises on key reforms will therefore be critical," S&P credit analyst Agost Benard said.

The government's fiscal consolidation plan, which entails a gradual lowering of the fiscal deficit over the next three years, will ease the debt and interest burden but "improvements in India's weak fiscal balance sheet are likely to be gradual," he added.

The government has promised to keep the deficit at 4.1 per cent for FY'15 and is targeting to bring it down to 3.6 per cent in FY'16 and push it further to 3 per cent by FY'17.

After comparing India with other BBB-rated peers like Brazil, Colombia, Indonesia, the Philippines, South Africa and Uruguay, the agency said the average income in India is "significantly low" and the "government is also more heavily indebted".

The stronger balance sheet on the external front only "partly offsets" these weaknesses, it added.

"The country's stronger external balance sheet only partly offsets these weaknesses," it said.

Flexibility on the monetary policy front, where RBI has shifted to rate cuts, is "moderately supportive" of the sovereign's credit-worthiness, it said.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, February 23 2015. 15:00 IST