The speed and direction of policy reforms by the next government will likely be important determinants in India’s sovereign ratings, credit rating agency Standard and Poor’s said in two reports released on Tuesday.
According to the reports, titled India’s Election Is Pivotal For Its Sovereign Creditworthiness" and The New Government’s Reform Policies Will Be Critical To The Credit Profile Of Indian Corporates And Banks, the direction and pace of policy reforms, more than which political party takes control, can affect the ratings on the sovereign.
"We believe that the current political landscape in India suggests that no single party could win an outright majority," said Standard & Poor’s sovereign credit analyst Kim Eng Tan. "An important factor is how fragmented the government will be.
The more parties involved in the next coalition government, the more likely policies will be incoherent and less supportive of credit attributes."
The elections and subsequent policy actions could decide if the sovereign rating remains investment grade at BBB-, which is one notch above junk status.
"We believe a decisive mandate can create an environment for speedy resolution of policy bottlenecks and reforms, and improve private sector investments," said Standard & Poor’s corporate credit analyst Abhishek Dangra.
"This can lay the foundation for India’s return to a stronger growth phase in the medium term.
A fragile government could further delay critical reforms as decision-making gets hampered, curbing revival in the investment cycle and derailing growth."