S&P reminds Modi of unfinished reforms
17 May 2014
India's sovereign credit rating will mostly depend on the fiscal and economic reforms that the new government undertakes over the next two to three months, rating agency Standard & Poor's Ratings Services said on Friday.
Actions taken by the new government will have "significant implications" on. Reviewing India's sovereign credit rating (''BBB-/Negative/A-3'') – a rating considered as the lowest investment grade.
S&P said the BJP-led National Democratic Alliance has received the mandate allowing them to a reasonably good political platform to decide on difficult issues and push forward structural reforms (See: Modi seen as PM as BJP emerges clear winner).
The next government would need to regain "fiscal prudence in a sustainable way," such as by implementing a goods and services tax to help stabilise government revenues, S&P said.
"What the next government says and does in the coming months is crucial to boosting confidence in the policy settings and the economy," an S&P statement quoted credit analyst Takahira Ogawa as saying.
"If confidence rises, investment and consumption in India could strengthen, after being held back by the uncertainty surrounding the election."
Over the medium to long term, the government would have to find ways of reviving investor confidence, manage fiscal consolidation, regain fiscal prudence, improve the current account balance, and boost the banking sector's financial strength, S&P pointed out.
The agency cited the slow approval processes for investments, particularly in infrastructure and the mineral resources sector, as one of the important causes that hamper economic growth.
It also reminded the government of the increasing expenditure of the government on the subsidy side which undermines the government increased non-tax revenues from accelerated divestments of shares in government-owned companies and increasing dividend receipts from PSUs.
The new government will also need to address the issue of the recently expanded food subsidy system and the UP government's incomplete fuel subsidy reforms, S&P said.