S&P says India’s fiscal health is a vulnerable spot

NEW DELHI: Cautioning that fiscal weaknesses continue to make India’s sovereign credit profile vulnerable, global rating firm Standard & Poor’s (S&P) on Monday said a financial or a commodity “shock” may unwind the improvements made so far.

Without further fiscal reforms the government may find it difficult to sustain the increase in public investment spending, it said. “Structural fiscal weaknesses continue to be vulnerabilities of Indian sovereign creditworthiness,” S&P credit analyst Kim Eng Tan said.

US-based S&P has a ‘BBB-’ rating on India with a stable outlook. It is a speculative investment grade, just a notch above the ‘junk’ status. Global investors often refer to the credit ratings of the markets while pumping in funds there.

“Although India’s budgetary performances have strengthened in recent years, its hard-won fiscal improvements could yet unwind because of a financial or commodity shock,” the rating agency said.

In its re por t — I ndia’s Fiscal Roadblocks Could Stall Infrastructure Progress — S&P Ratings Services said that despite measures for fiscal prudence, subsidy expenditure and high government debt remained concerns.

“Without f ur t her f i scal reforms, the Indian government may find it difficult to sustain the increase in public investment spending,” it said.

Tan said the government’s willingness to cut spending to rein in the budget deficit indicates the high priority of fiscal prudence on its agenda.

“From an institutional and governance point of view, this supports the sovereign credit rating on India,” Tan said.

Last week, Moody’s had raised India’s credit outlook to “positive” — raising hopes for an upgrade in its sovereign rating in the next 12-18 months, while another global firm Fitch projected faster growth.

S&P said subsidy spending is one of the key source of weakness, despite fuel-subsidy reforms in 2014 and another constraint is the heavy government debt.