Published On : Wed, Nov 2nd, 2016

S&P’s decision to not upgrade India should be eye-opener for Modi govt, not frustrate it

New Delhi: Global rater Standard and Poor’s decision to retain India’s sovereign ratings at BBB- and the agency’s comment that any rating upgrade is unlikely in at least two years hasn’t clearly gone down well with the Narendra Modi government.



At a presser on Wednesday in Delhi, economic affairs secretary Shaktikanta Das didn’t hide his disappointment. Das said S&P should do an “introspection” for not upgrading India’s sovereign rating, despite unparalleled reforms anywhere in world.

“I’m not questioning anybody’s methodology. We value their comments. And they will be taken into consideration. (But) Investors agree that India is under rated. They (rating agencies) should do some introspection (on why they haven’t upped the India rating,” said Das responding to questions at the presser.

In September, another global rating agency, Moody’s too had retained India ratings saying it would wait for at least two years to see ‘tangible’ results of reforms on the ground before thinking about a rating upgrade.

Das’s frustration is understandable given that the Modi government has been desperate to get credit for its work on the reform front in the last two years and show the voters that the government’s work is indeed showing results. When things don’t happen in the desired speed, it’s quite logical the political leadership gets disappointed. This was so even when the recent World Bank’s ranking of countries based on ease of doing business, came in October, showed only a marginal improvement for India (one rank up to 130 of 190 economies).

Even the political enemies of Modi wouldn’t deny the reform intent of this government. Ever since the NDA government took charge in May 2014 it has made notable progress on pushing certain key bills in Parliament including insurance, coal, Aadhhar and the crucial bankruptcy law besides managing to build the political consensus to initiate the rollout of the crucial Goods and Services Tax (GST) regime. Also, the government’s initiatives on subsidy reforms, rural infrastructure and its efforts to give a leg-up to the small industries have helped to improve sentiments.


A look at the S&P note shows that the agency has indeed acknowledged that the positive changes in the economy. “India’s governing parties have made progress in building consensus on a passage of laws to address long-standing impediments to the country’s growth…we believe these measures, supported by India’s well-entrenched democracy, will promote greater economic flexibility and help redress public finances over time,” S&P has said.

Then why is the rater reluctant to up the sovereign rating? S&P has highlighted two key reasons, “vulnerabilities stemming from its low per capita income and weak public finances”.

“The outlook indicates that we do not expect to change our rating on India this year or next, based on our current set of forecasts,” S&P has said.

In September, Moody’s too had highlighted weak private investment scenario in the country as a hurdle for a rating upgrade. The agency had listed a six-point agenda on the list of pending reforms — the land acquisition Bill, labour law reforms, significant infrastructure investment, tangible benefit from Make in India initiative, tax administration and PSU bank reforms.

These are precisely areas where the Modi government has so far failed to make significant progress. Absence of revival in private investments remains a big concern. According to data from the Centre for Monitoring Indian economy (CMIE), private investments have fallen sharply ever since the Modi government took over. The share of private investments in projects under implementation has fallen from 52.8 percent in 2013-14 to 47.7 percent in 2015-16, whereas during the same period, the government’s share of investments increased from 47.2 percent to 52.3 percent.

The growth in private investments between 2013-14 and 2015-16 rose by mere 1.1 percent, whereas that in the public investments grew by 24 percent. In short, private investments have been painfully low.

The bottom line is this: Crying foul at rating agencies for not delivering the expected rating would hardly help. Instead, these indications should act as an eye opener to understand the problems and move ahead to solve them.


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