S&P, CITING POLICY PARALYSIS, CUTS INDIA’S RATINGS OUTLOOK
By Aaron Chaze
S&P cut India’s sovereign credit rating outlook to negative in April in response to growing paralysis in government policy.
India’s rating remains at BBB-, the lowest investment-grade rating, and any further downgrade from here would take the rating below investment grade. The Indian government has no outstanding foreign currency borrowings, but a downgrade will affect Indian companies’ ability to borrow in foreign currency at a reasonable cost.
The Indian minister of finance decided in May to delay implementing a proposed tax avoidance rule for foreign portfolio investors, the General Anti-Avoidance Rule, until next year. Foreign investors exited in droves in April. Portfolio investment is at net $8.9 billion since January, on expectations that the central bank will cut rates further in order to stimulate investment and growth. The government also announced that it would reduce the long-term capital gains tax for private equity investors to 10% from 20% and will exempt from tax the sale of unlisted securities in an IPO, though it plans to levy a 0.2% security transaction tax on the sale of unlisted securities.