Global rating agency Standard & Poor’s (S&P) on Wednesday raised its long-term foreign currency rating on India by one notch to ‘BB+’, and affirmed its ‘BB+’ long-term local currency, and short-term ratings. Still, the new S&P rating is below the investment grade and also below Moody’s ‘Baa3’ rating.“The outlook is stable. The upgrade on the foreign currency reflects India’s improved external position and growth prospects,” S&P said in a statement. The rating upgrade sent the rupee’s value soaring by nearly 30 paise at the foreign exchange market.“India’s external balance sheet has strengthened markedly, due to reserves accumulation and prudent debt management, which should lower the external liquidity risk from its fiscal vulnerability,” said S&P credit analyst Ping Chew, Director, Sovereign and International Public Finance Group.“The upgrade is positive and basically people will use it as an excuse to come back to India. Money has moved out from India in the first two or three weeks of January into other markets like Korea and Thailand and this upgrade would lead to a reversal,” said Bhanu Baweja, currency strategist at UBS, Singapore. The upgrade might also help the domestic companies who wants to mobilise funds abroad in the form of cheaper rates in the international market.The strong growth in export earnings, particularly from the service and manufacturing sectors, as well as non-debt foreign capital inflows should alleviate the impact of rising imports. “India’s external debt and debt service burden is expected to fall in the years ahead,” S&P said.“The country’s external balance sheet is healthy because of the strong performance of industry and services and also because the government does not borrow externally,” said Saumitra Choudhury, Economic Adviser, ICRA.“I think it (the upgrade) basically is stemming out on India’s strong external situation. Exports are strong, foreign inflows are strong, which could have prompted the upgrade,” said Indranil Pan, Chief Economist of Kotak Mahindra Bank.Foreign exchange reserves stood at $129.4 billion on January 21, up from $104.2 billion a year earlier. According to analysts, the reserves are enough to take care of nearly 18 months of imports and are about 20 times the country’s short-term external debt.
