Fiscal, economic reforms to determine country's sovereign credit rating: S&P

Standard & Poor (S&P) Ratings Services has underscored that the new Indian government's reform initiatives in economic and fiscal policies over next two to three months would have significant implications on the country’s sovereign credit rating. It has further highlighted that key challenge for the new government would be to regain fiscal prudence in a sustainable way, which could be achieved by implementation of Goods and Service Tax (GST) that would help stabilize government’s revenues. In S&P’s view, NDA's strong showing indicates that it will have a reasonably good political platform to tackle structural issues. However, it has emphasized that new government would face hurdles in sustaining growth in the medium to long term, which includes reviving investor confidence, managing fiscal consolidation, regaining fiscal prudence, improving the current account balance and boosting the banking sector's financial strength. The rating agency also noted that the outgoing United Progressive Alliance (UPA) government recently expanded the food subsidy system and its fuel subsidy reforms are incomplete. It also acknowledged government’s attempt to shore up its non-tax revenues by accelerating divestments of shares in government-owned companies, increasing dividend receipts from government-owned companies, and delaying payments, such as fuel subsidies. Nevertheless, the rating agency further warned that if the next government fails to lift confidence, the task of turning the economy around would be heavier. It added the glimpse of this could be gauged from announcement of revised budget, which would be keenly watched not only by Dalal Street, but also global rating agency, including S&P, which is the only of the three major credit agencies to have India with a 'negative outlook' for its 'BBB-minus' rating, implying any downgrade would send the country to below investment grade.