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SP upgrades India’s credit outlook to ‘stable’

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The News International Team

In a huge sentiment boost for India, global rating agency Standard & Poor’s on Friday revised India’s credit outlook to “stable” from “negative”, acknowledging the improvement in the country’s economic environment.

Though the agency has maintained ‘BBB-‘ long-term and ‘A-3’ short-term “unsolicited sovereign credit ratings”, the revision in outlook will definitely be a positive .

“Our outlook revision reflects our view that India’s improved political setting offers a conducive environment for reforms, which could boost growth prospects and improve fiscal management,” S&P said.

The ratings on India reflect the country’s strong external profile, combined with its democratic institutions and free press, both of which underpin policy stability and predictability, the agency said.

India registered its fastest growth in nine quarters between April and June 2014. The new government led by Prime Minister Narendra Modi has vowed to keep the fiscal deficit under control at 4.1 percent of GDP.

Moreover, the improvement in the current account deficit scenario (it fell from a peak of 4.7 percent in FY13 to 1.7 percent in FY14), after restrictions on gold imports and slower domestic investment demand, has also been a key to revised outlook. “CAD has improved in recent years post gold import curbs. We see little foreign exchange or roll-over risk for the government,” S&P said.

According to S&P, the stable outlook for the next 24 months reflects its view that the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential, consolidate its fiscal accounts, and permit the Reserve Bank of India to carry out effective monetary policy.

“We could raise the rating if the economy reverts to a real per capita GDP trend growth of 5.5 percent per year and fiscal, external, or inflation metrics improve. Conversely we may lower the rating if the government’s structural reform agenda stalls such that economic growth does not accelerate, or fiscal and debt ratios fail to improve,” it said.

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