5 Reasons why India should be upgraded by S&P retrospectively

Frankly, given a choice, if i am the one to give rating to India at this point of time, i would rate it AAA. Such is my confidence on this land of opportunities, that we really don’t deserve to be a notch just above “Junk” (BBB-). My buoyancy is backed by below 5 points, which will prove that it’s high time India is upgraded by Credit rating agencies.

During the last review by S&P in Nov 2016, the issues raised were more on Low per capita income and weak public finances. Likewise the expectations was to bring Govt debt below 60% of GDP. Even though S&P made all the positive noise in its statement, the fact the outlier upgrade was not given was a disappointment to Govt. 

We have been at the same rating since Jan 2007 (with just change in outlook). The below argument dwell that we should be upgraded soon in next 2-3 months. 

1. Debt to GDP Ratio – India GDP is $2.4 trillion. If India manages to grow at double digit for next 5 yrs, India’s GDP will double by 2025. This will be huge in terms of generating jobs as well. Also, current debt This is one of the most important parameter while deciding on rating. According to IMF estimates, the Debt to GDP estimates for 2016 was 68.5%. In 5 yrs from now this is expected to come down to 60%. For sake of comparison, China’s Debt to GDP is 272% and that of Japan’s is 250%. Even debt of US is 105%, which is AAA ranked. For a country like Spain & Italy this is above 100%. Apart from the Brexit issues, political instability is another reason this region faces. In last 5 yrs, Italy has seen about 12 Prime Ministers.!
2. Inflation, CAD, Fisc Deficit, Rupee – RBI has come really hard on Inflation targeting. The era of Raghuram Rajan was one of the classical ones in terms of bringing inflation under control. From a 9% CPI inflation, we are now in range of 4-5%. The real rupee returns is going to create multiplier effect as well. The rupee has already appreciated 4.5% during the first quarter of calendar year 17, making it one of the top 3 best performing currency in world. Indeed, Current account deficit (CAD) is completely under control with timely restrictions put on. S&P expects CAD to be in range of 1.3-1.5% of GDP in next 2 yrs. 
3. FDI Inflows – This parameter actually decides the sentiment of country as well as how foreign investors view the political stability along with Macro economic status of the economy. In terms of FDI, India received $43.46 billion in FY17 as against $40.01 billion in FY 16 – This is the highest FDI India has ever received. Likewise, FII’s too have invested in Equity markets about $7.7 billion during FY 17 which shows the confidence on the India. By far, India has outperformed majority of the developed countries in % increase vis-a-vis previous yr. 
4. GST – For all the hue and cry which is happening since 2004, India is going to implement GST come 1st July 2017.! It is in real sense going to be a ‘Game Changer’ the way business is going to be run in India. It is expected to widen IDT tax base by 10 million people.  This will push the GDP by 2-3%. The velocity impact of it is still not being appreciated by Economist fully. 
5. Economic Reform Policies – Needless to speak on this post the decision on demonetization, where even the critics have accepted that demon was one of the best steps India has taken. The important point to note over here is also the Synergy in various dept of Govt. Gone are those days where projects used to be stalled for a decade due to minor issues. Govt has made sure each dept sits across the table to sort out the issues. Also, entire focus is on Ease of Doing business where India has moved up quickly to 131st position and dreams to reach in Top 50. It’s mesmerizing to think of states competing with each other in EADB. Also think of Skill Development, Women entrepreneurship, JAM, Sustainable development, Swaach Bharat, thrust on Infrastructural sector, Housing for all by 2022, Surplus power producer in next few years, implementation of Universal Basic income (UBI), Political stability for another 7-8 years etc. The impact of each of this on Per capita income as well as GDP is going to be humongous. 

Rating agencies should realise day is not far when India will be racing towards double digit growth. For 2018, IMF is forecasting a growth of 7.5 – 8% for India. Will successful implementation of GST as well as ongoing reforms can push GDP par 10% for years to come.

For me, S&P should regret for not having upgraded India since 2007 and should not do so retrospectively.