S&P Says It’s Not Inconsistent, India Must Cut Public Debt For An Upgrade

Rejecting the Indian government’s claim that its ratings were “inconsistent”, Standards & Poor’s said on Thursday that it doesn’t discriminate and applies its methodology consistently around the world.

“Of course, we have been following the government’s comments made through the Economic Survey pretty closely. We apply the same methodology across the globe and India is no exception,” Kyran Curry, director of S&P Global, said in a webinar.

Curry said a ratings revision for India hinges on the government’s drive to consolidate finances and cut public debt. India’s debt-to-GDP ratio reached 68.5% in 2016, according to the Economic Survey, which advocated bringing the ratio down over the next couple of years to improve fiscal position.

S&P said public debt is holding India’s ratings back, in addition to lack of private investment in the economy which shows no signs of reinvigorating.

In the Economic Survey released on January 31, Chief Economic Adviser Arvind Subramanian had compared some of India’s financial indicators to China’s and questioned why S&P has given the neighbouring country a more positive outlook despite a worse fiscal position.

“In December 2010, it (S&P) increased China’s rating from A+ to AA- and it has never adjusted it since, even as the credit boom has unfolded and growth has experienced a secular decline,” the Economic Survey said. It said that India’s ratings have “remained stuck at the much lower level of BBB-, despite the country’s dramatic improvement in growth and macroeconomic stability since 2014”.

India has a BBB- sovereign rating from S&P with a positive outlook while China has a higher rating of AA- with a negative outlook.

Subramanian claimed that the ratings agency had failed to take note of India’s reforms such as liberalised FDI, bankruptcy code and a monetary policy framework.

India has been lobbying for a ratings upgrade for quite some time now. Reports emerged in December that the Finance Ministry wrote to Moody’s and questioned their methodology, while the agency said that India’s debt situation is not as good as the government made it look.

S&P’s Curry said comparisons with China are “useful” but they need to be seen in the light of major indicators such as the five times higher per capita GDP compared to India and a much lower public debt.

He said Budget 2017 provides a positive outlook on the fiscal consolidation path, but it needs to be watched before being declared a success.