New Delhi : The direction and pace of policy reforms of the new government that assumes office after the Lok Sabha polls will determine India’s sovereign ratings, international agency Standard & Poor’s (S&P) said Tuesday.
“The direction and pace of policy reforms, more than which political party takes control, can affect the ratings on the sovereign,” S&P said in its latest reports.
According to the reports, the outcome of India’s general elections can provide an insight into the political stability, ability, and willingness of the new government to implement reforms for boosting economic growth.
Two reports in which the agency made the observations are titled “India’s Election Is Pivotal For Its Sovereign Creditworthiness” and “The New Government’s Reform Policies Will Be Critical To The Credit Profile Of Indian Corporates And Banks”.
Standard & Poor’s has a BBB- rating on India with a negative outlook. This is the lowest investment grade rating. A downgrade will give India’s sovereign ratings a “junk status”.
In its earlier report the S&P had warned of the risks of a ratings downgrade in the absence of structural reforms, fiscal consolidation and if economic growth decelerates further.
“We believe that the current political landscape in India suggests that no single party could win an outright majority,” said S&P sovereign credit analyst Kim Eng Tan.
“An important factor is how fragmented the government will be. The more parties involved in the next coalition government, the more likely policies will be incoherent and less supportive of credit attributes.”
The new government’s policy directions will set the medium-term growth expectations and long-term structural factors for the economy.
“In our opinion, structural reforms are essential for India to return to healthier economic growth of above 6 percent on a sustainable basis and stimulate investments,” the S&P said.
India’s 16th general elections, where more than 800 million people are eligible to vote, are underway. To claim the right to form a new government, a single political party or a coalition of political parties needs to win 272 out of 543 seats in the Lok Sabha, the lower house of parliament. In the 545-member house, two members are nominated.