International credit rating agency Standard & Poor (S&P) has upgraded India to investment grade (BBB-). It had downgraded India from investment grade in 1991 following the historic foreign currency crisis country suffered that time. Later when Moody and Fitch upgraded India in 2004 and 2006 S&P continued with its downgraded rating. This was a matter of concern for many foreign investors and moneylenders. With this Sovereign rating up gradation business credibility of Indian corporate will definitely get an edge. Though this improvement is not fully unscratched, as S&P has also expressed its concern for quite high total fiscal deficit to GDP (almost 7.5%) ratio and total debt financing cost for Indian companies, which is around 35% of total revenue of all Indian companies.
S&P Sovereign Rating is primarily meant for international debt market. Through out the world foreign banks, debt fund managers and international debt market participants use this rating as risk parameter associated with borrowing country. So selling debt instruments abroad will be easier and cheaper now. For big companies with positive previous borrowing record this won’t make any difference but economy as a whole can sell its infrastructure, power sector and other projects successfully; in coming years these sectors are going to utilize lots of capital. And without cheap foreign fund, continuation of these projects will be difficult. Moreover, indirectly this improved rating will boost up sentiment of those investors abroad who are sitting on fund and hesitating to enter world’s fourth fastest growing economy. RBI can expect more capital inflow through FII and portfolio Investment avenues in coming days.
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