Political stability to positively impact India’s rating: S&P

Pointing out that it was too early to comment on the impact of formation of a stable government at the Centre,Ogawa said,”a better political environment itself will not warrant to progress in the areas such as fiscal consolidation,deregulations and public sector reforms,to improve main constraining factors for sovereign ratings of India.”

Earlier in January,the decision of the global agency to change the outlook for long term ratings,which was pegged at BBB,from ‘stable’ to ‘negative’ in January evoked sharp reaction from the Finance Ministry,which questioned the rationale behind the move.

Credit rating BBB indicates that adverse economic environment could impair the capacity to meet financial obligations. While ‘stable’ outlook implies that rating would remain the same,the ‘negative’ outlook suggests likelihood of a downgrade.

Standard and Poor’s Ogawa further said that in absence of the economic and fiscal policies of the new UPA government,it would be too early to comment on the impact of the victory of the coalition at the general elections on India’s sovereign ratings.

The Congress-led UPA,which won over 260 seats in the general elections for the 15th Lok Sabha,is slated to form the government on Friday and come out with a budget in July which will spell out its economic policies.

Answering question on the weight that rating agency assigns to political stability,Ogawa said,”highly rated sovereign tends to have a strong and stable political system and environment and those rated lower tend to have weak or unpredictable political systems.”

However,according to Ogawa,”the relative importance of political stability for our sovereign consideration could change,depending on the country’s and situation.

“If the country’s political situation is very volatile and current government and opposition have significantly different views on the economic,fiscal or foreign exchange rate policies,then political stability is very important for such sovereigns.”

Political factor,Ogawa added,could be less important in case a country has an acute problem in areas like balance of payments,fiscal deficits,inflation or debt payments.