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S&P To Weigh Agri Market Reforms, Ease Bad Loan Stress For Future Ratings

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S&P To Weigh Agri Market Reforms, Ease Bad Loan Stress For Future Ratings
PTI - 14 June 2020

New Delhi, June 14: Rating agency S&P will give credence to reforms in the agriculture and labour market as well as easing of bad loan stress of the banking sector, while deciding future rating action on India, a senior official has said.

S&P Director and Lead Analyst Sovereign & IPF Ratings APAC Andrew Wood also said that the return of insolvency provision under the Insolvency and Bankruptcy Code (IBC), which was suspended for at least six months, and stronger regulator framework would be important in improving the health of Indian banks.

Last week, S&P Global Ratings had retained India's rating at lowest investment grade 'BBB' for the 13th year in a row, saying risks to India's long-term growth rate are rising. The ongoing economic reforms, if executed well, should keep the country's growth rate ahead of peers.

To a PTI query on what specific reforms the rating agency would look at while determining the future rating action, Wood on Friday said the rating agency would give credence to reforms to the domestic agriculture sector, liberalisation of labour market thereby job creation in the manufacturing sector, improvement in infrastructure and business-friendly foreign investment policy.

"The reforms that we will give credence to in the agriculture sector, into domestic markets have been introduced and that is somewhat path-breaking in the history of India. It would help address the supply side bottlenecks that have cropped up in the economy in the past as well as to make the agriculture sector more efficient," Wood said.

He, however, emphasised on the need to create jobs in the manufacturing sector. "To achieve that labour market reforms are going to be important. The government appears to be making some headway in this issue."

Stating that in India, states decide on labour laws and related reforms, Wood said, "But the BJP government has a strong mandate and appears to be pushing harder on the states to get this done. We would be looking at liberalisation of labour markets further".

Efforts to bring in foreign capital, private sector in infrastructure, and improving the business environment through that route is going to be very crucial, he said, adding attracting Foreign Direct Investment (FDI) is also very important.

Concerning the financial sector, Wood said it is a specific weakness for India and IBC was "very constructive" in terms of starting to address issues and leading to more prudence in lending by PSBs. Also, fund injection into public sector banks has led to improvements in their capital position over the past few years. However, more work is probably needed here.

The government earlier this month promulgated an ordinance to amend the Insolvency and Bankruptcy Code (IBC) whereby fresh insolvency proceedings will not be initiated for at least six months starting from March 25 amid the coronavirus pandemic.

Default on repayments from March 25, the day when the nationwide lockdown began to curb coronavirus infections, would not be considered for initiating insolvency proceedings for at least six months.

"IBC which has been suspended for now for 6 to 12 months but return and continued implementation of a stronger regulatory framework is important for the health of the sector.

"It is not often in an economy that we see in India 10 years have been running at full-stream but the banking sector remains weak for a long period. So, it's going to be very crucial that banking sector problems are addressed in India," Wood added.

S&P Global Ratings has projected Indian to shrink by 5 per cent in the current fiscal but growth is expected to bounce back to 8.5 per cent next fiscal.

India's economic growth potential in medium and long-term is 6.5 to 7 per cent but reforms are critical for the country to get back to recovery after a deep shock this year.

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