Economy

Again, S&P warns of lowering India rating

Our Bureau New Delhi | Updated on March 12, 2018 Published on October 10, 2012

A downgrade is likely if the country's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow, S&P said.

Not sure of reform implementation

Rating agency Standard & Poor’s has again cautioned that there is a significant chance it will lower the credit rating on India.

In its report card on ‘Asia-Pacific Sovereigns: A Bit of Stability in the Sea of Uncertainty,’ it said, “India was the only Asia-Pacific sovereign to see a negative rating action in the past six months. The weaker global economic outlook and domestic policy instability contributed to deteriorating growth prospects and investor confidence in the country. In our view, there is a significant chance that this trend could eventually affect political, economic, fiscal or external factors to lower the credit rating on India.”

On April 25, the agency revised India’s outlook on long-term rating to ‘negative’ from ‘stable,’ citing slow fiscal progress and deteriorating economic indicators.

The negative outlook signals at least a one-in-three likelihood of a downgrade of the sovereign rating on India within the next 24 months.

The agency in its latest report did take note of the various reforms measures initiated after P. Chidambaram took over as Finance Minister in August. Though appreciative of the ‘reignited reform efforts’ Standard and Poor’s is slightly apprehensive about their implementation. It said the political cost has become apparent, with one member of the coalition quitting. As a result, the coalition has become the minority in both the Upper and Lower houses of Parliament.

“Although the ruling coalition expects support from friendly parties, the political condition tends to become more fluid ahead of the general election expected in 2014. The foreign ownership reforms for the insurance and pension business are likely to become more challenging as they need parliamentary approval,” it added.

The report card concludes saying the agency might revise the outlook back to stable if the Government implements initiatives to reduce structural fiscal deficits, improve its investment climate, and increase growth prospects.

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Published on October 10, 2012
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