NEW DELHI :
Rating agency S&P Global Ratings on Thursday affirmed India’s long-term sovereign rating at ‘BBB-’ with stable outlook, saying the country’s economic growth is likely to recover toward longer term trend rates in two to three years.
The rating agency said the stable outlook reflects its view that “India’s growth will stabilize and begin to recover from its current low ebb."
“Fiscal deficits will remain broadly in line with our forecasts over the next two years," it added.
S&P also said that despite a “notable deceleration" in India’s economy in recent quarters, the firm believed the country’s structural growth outperformance remains intact. “Real GDP growth is therefore likely to gradually recover toward longer-term trend rates over the next two to three years," it said.
However, the agency flagged the slippage in India’s officially estimated fiscal deficit for FY20 and FY21. “India’s fiscal position remains precarious, with elevated fiscal deficits and net government indebtedness. Fiscal deficits have exceeded the government’s plan, and we expect limited consolidation over the next few years," it said.
Asia’s third largest economy is grappling with a deep economic slowdown, prompting the government to lower the corporate tax rate and offer monetary stimulus. Official data released on Wednesday showed industrial output contracted in December and retail inflation shot up to a 68-month high in January, a day after the government cited several economic indicators to claim that the economy was recovering.
As per the National Statistical Office, the index of industrial production (IIP) shrank 0.3% in December from a 1.8% expansion a month ago, while retail inflation accelerated to 7.59% in January from 7.35% in the previous month.
Chief economic adviser Krishnamurthy Subramanian on Thursday told reporters that surging onion prices were a big contributor to the recent spike in food price inflation, which is likely to moderate when fresh crop comes by March. “Food inflation is likely to soften from the high levels of December with the arrival of new harvest and higher vegetables production," said Subramanian, adding that headline inflation which includes food and oil prices, will converge with core inflation which does not include these two items, by July-August.
Subramanian added that the rise in the purchasing managers index (PMI) corelates with industrial output growth and that the S&P move of affirming the sovereign rating and retaining the stable outlook should be seen in this context. The manufacturing PMI hit a near eight-year high of 55.3 in January, up from 52.7 in December, data analytics firm IHS Markit said on 3 February.
S&P said that upward pressure on the ratings could build if the government significantly curtails its fiscal deficits, leading to lower net indebtedness at the general government level (central and state governments together). Downward pressure on the ratings could emerge if the country’s economic growth rate falls well below the rating agency’s forecasts or if political developments materially undermine economic reforms.