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India still vulnerable to external shocks: S&P

Despite considerable fiscal improvement, India’s continued vulnerability to external shocks proves a concern for its sovereign rating profile, ratings agency tandard and Poor’s said on Monday.

business Updated: Apr 13, 2015 22:52 IST
HT Correspondent
Prime-Minister-Narendra-Modi-has-put-the-manufacturing-sector-at-the-forefront-with-his-Make-in-India-programme-AFP-File-Photo
Prime-Minister-Narendra-Modi-has-put-the-manufacturing-sector-at-the-forefront-with-his-Make-in-India-programme-AFP-File-Photo

Despite considerable fiscal improvement, India’s continued vulnerability to external shocks proves a concern for its sovereign rating profile, ratings agency tandard and Poor’s said on Monday.

The government may find it difficult to sustain the increase in public investment spending without further fiscal reforms, S&P said in its report ‘India’s Fiscal Roadblocks Could Stall Infrastructure Progress’.

“While the country’s budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of a financial or commodity shock,” said the rating agency, which has given India a ‘BBB-‘rating with ‘stable’ outlook.

The report pointed out that concerns remained over subsidy expenditure and high government-debt.

S&P’s credit analyst Kim Eng Tan said, “The government’s willingness to cut spending to curb the budget deficit is a positive indication. From an institutional and governance point of view, this supports the sovereign credit rating on India.”

Last week, however, Moody’s upgraded India’s credit outlook to ‘positive.’

The move raised hopes for a sovereign upgrade in the next 12-18 months. Another global firm Fitch also projected faster growth for India.

It said that sustained fiscal consolidation, structural reforms and low inflation are positive for the country’s ratings.

“India’s economy has been on a gradual uptrend since May 2014, but the country’s corporate sector remains in a wait-and-see mode before committing to significant new investments,” said CRISIL’s chief economist Dharmakirti Joshi.

A report by Crisil that was published by S&P noted that India was the fastest growing economy among the BRICS nations (Brazil, Russia, India, China, and South Africa), and is no longer seen as part of the “fragile five” (the others being Turkey, Indonesia, Brazil, and South Africa).