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November 2016
Standard and Poor's on Wednesday
maintained its stable outlook for India in its latest update, even as the
Finance Ministry felt that the rating must be upgraded in tune with the global
investor sentiment towards the country and its continuing economic reforms and
improved macro stability. The Total Investment & Insurance
Solutions
"We are affirming our 'BBB-'
long-term and 'A-3' short-term sovereign credit ratings on India. The stable
outlook balances India's sound external position and inclusive policy making
tradition against the vulnerabilities stemming from its low per capita income
and weak public finances," Standard and Poor's said. The Total Investment
& Insurance Solutions
While the rating agency lauded the
likely introduction of Goods and Services Tax (GST) in the first half of 2017
"to replace complex and distortive indirect taxes", it ruled out any
rating upgrade "this year or next, based on current set of forecast".
Reacting to the S&P stable
outlook, Economic Affairs Secretary Shaktikanta Das said the rating agencies
need to introspect as to why India's rating was not improved.
"Cannot understand why India's
rating has not been upgraded. The rating agencies need to internally examine
the disconnect between foreign investors' and rating agencies' views," Das
told reporters.
The Total Investment & Insurance Solutions
"Investors agree that India is
highly under-rated country. Many Canadian investors bullish on India, have
invested huge chunks in one-two years," he said.
However, Das said the rating
agency's comments will be taken in the right spirit by the government. The Total Investment
& Insurance Solutions
"We are not questioning
anybody's methodology. We value comments and observations of S&P," he
said.
The Total Investment & Insurance Solutions
"S&P outlook on India
highlights the reforms undertaken by the government. It recognises that India
is continuing structural reforms," he added.
In its outlook for India, the rating
agency said improvements in policy making continue to strengthen the prospects
for its economic and fiscal performance.
Wide fiscal deficits, a heavy debt
burden, and low per capita income nonetheless detract from the sovereign's
credit profile, S&P said. The Total Investment & Insurance
Solutions
"India's strong democratic
institutions and a free press, which promote policy stability and
predictability, also underpin the ratings," it said. The Total Investment
& Insurance Solutions
Other measures include strengthening
the business climate (such as through simplifying regulations and improving
contract enforcement and trade), boosting labour market flexibility, and
reforming the energy sector, it added. The Total Investment & Insurance
Solutions
"We believe these measures,
supported by India's well-entrenched democracy, will promote greater economic
flexibility and help redress public finances overtime," it said.
A rating constraint is India's low
GDP per capita, however, India's growth outperforms its peers and is picking up
modestly, the agency said. The Total Investment & Insurance
Solutions
"We expect GDP growth of 7.9
per cent in 2016 and eight per cent on average over 2016-2018. We believe
domestic supply-side factors will increasingly bind economic performance, and
the government has little ability to undertake counter cyclical fiscal policy
given its current debt burden," it said. The Total Investment
& Insurance Solutions
On the inflation target, it said the
Reserve Bank of India is expected to achieve the inflation target of five per
cent by March 2017 as it advances along a glide path to the medium-term
inflation target. The Total Investment & Insurance Solutions
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