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A sovereign rating upgrade is on the cards for India in the next 12-18 months, driven by the ongoing structural reforms, particularly on the taxation front, global brokerage firms say.
India is currently at the last rung of investment grade, just a notch above the ‘junk’ status, by all three leading global credit rating agencies — Moody’s, S&P and Fitch.
The sovereign rating and outlook for a country are often referred to as key parameters by foreign investors and global bodies to gauge its investment climate.
“Going forward, in the near term, we expect an outlook revision by both S&P and Fitch, while in the medium term, we believe that the ongoing structural reforms, particularly on taxation, could catalyse a sovereign ratings upgrade,” Citigroup said in a research note.
According to the brokerage, India’s GDP growth is expected to pick up in FY16 to 8.1 per cent as against FY15 GDP estimate of 7.4 per cent.
The fiscal consolidation process is likely to continue, Citi India Chief Economist Rohini Malkani said.
“While India’s government debt and interest coverage ratio remains elevated with respect to peers, the ratio is likely to improve as the fiscal roadmap is followed and tax reforms such as GST are implemented,” she said.
According to Japanese brokerage firm Nomura, India’s economic fundamentals are improving with the government focused on boosting investment and productivity and Reserve Bank’s resolve to keep inflation low.
“This policy combination should ensure growth with macro stability in coming years and should make India stand out relative to its peers,” Nomura India Chief Economist Sonal Varma said in a note.
Moody’s had recently raised India’s credit rating outlook to ‘positive’ and said an upgrade in its sovereign rating is also possible in the next 12—18 months.
Since 2004, Moody’s has rated India at Baa3 — at par with countries like Indonesia, Iceland and Turkey.
Other global agencies — S&P and Fitch — also have the same credit rating for India due to high inflation, huge debt levels of the central and state governments, infrastructure issues and huge bad loans in the banking system.
Standard & Poor’s had recently upgraded its India outlook to ‘stable’ while Fitch Ratings has had a ‘stable’ outlook for the country’s credit rating since 2013.
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