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S&P raises India's credit worthiness

S&P upgrades India's long-term credit rating to 'investment grade', report BSS Reddy and MC Vaijayanthi.
None | By BS Srinivasalu Reddy and MC Vaijayanthi, Mumbai
UPDATED ON JAN 31, 2007 08:47 AM IST

Global credit ratings major Standard & Poor’s (S&P) on Tuesday upgraded India’s long-term sovereign (government) credit rating to ‘investment grade’, with a ‘stable’ outlook for the rating.

India became the 13th country rated by S&P to have clawed back from non-investment grade.

The upgrade has put India back on the global credit map after nearly 15 years. With rival international ratings agency Fitch having already led the way with a rating upgrade, of major international rating agencies, only Moody’s is yet to officially buy the India growth story.

The country had been downgraded after the balance of payments crisis of 1991, which forced the government to put a chunk of its gold reserves in hock to tide over the shortage of foreign exchange. This shock helped set the reform process in motion. India has come a long way since then.

A Prasanna, economist, ICICI Securities, said, “This upgrade will not have much bearing on India as our government does not borrow much from overseas markets.” But it could help medium-sized companies and public sector units borrow abroad at lower rates.

The upgrade is also likely to instill greater confidence among investors to put their money into India and strengthen the rupee.

In a statement, S&P said, “The upgrade reflects the country’s strong economic prospects and external balance sheet, and its deep capital market, which supports a weak, but improving, fiscal position.”

“India’s economic prospects remain strong and are rising gradually, with GDP trend growth likely to average more than 7.5 per cent in the medium term,” said Ping Chew, S&P’s primary credit analyst.

Officially, any future debt issues by India will be rated BBB-minus/A-3.

S&P cited reforms, and “consistent monetary and fiscal policy stances” as the major reasons for its upgrade.

The upgrade will also boost the ratings of all the country’s leading banks, whose rating were capped by the sovereign rating.

With major banks now able to access cheaper foreign funds, it might reduce the pressure on domestic interest rates, which would include home and car loans.

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