Standard & Poor’s Ratings Services expects the new government’s reform initiatives over the next two to three months to have significant implications on the sovereign credit rating on India (“BBB-/Negative/A-3”).
A “BBB-” rating is considered the lowest investment grade by market participants. In Standard & Poor’s view, the BJP-led National Democratic Alliance’s strong showing indicates that it will have a reasonably good political platform to tackle structural issues.
Credit analyst Takahira Ogawa said: “What the next government says and does in the coming months is crucial to boosting confidence in the policy settings and the economy. If confidence rises, investment and consumption in India could strengthen, after being held back by the uncertainty surrounding the election.”
According to the agency, the hurdles to growth in the medium to long term include reviving investor confidence, managing fiscal consolidation, regaining fiscal prudence, improving the current account balance, and boosting the banking sector's financial strength.
Investments, particularly in infrastructure and the mineral resources sector, face slow approval processes reducing economic growth potential. In the past two budget years, the government increased non-tax revenues by accelerating divestments of shares in government-owned companies and increasing dividend receipts from PSUs.