Even as Fitch warned of a better than one in two chance of India's sovereign credit rating getting downgraded, the Government termed the rating agency's concern about the economic growth, inflationary pressures, and weak public finances as “out of context.”

The ratings major on Monday followed Standard & Poor's in changing the rating outlook on India to ‘Negative' from ‘Stable', while retaining the current rating at ‘BBB-' (pronounced triple B minus).

India's sovereign rating of ‘BBB-' is the lowest investment grade rating issued by the agency. A downgrade can take it to ‘BB+' which is considered junk grade. A junk rating will hit investment inflows and raise the cost of borrowing from overseas markets for both the Government and the private sector.

Fitch is the second agency after Standard & Poor's (S&P) to revise the outlook to negative. However, S&P had put the likelihood of a rating downgrade at one in three.

The Director of Fitch's Asia-Pacific Sovereign Ratings group, Mr Art Woo, told Business Line, “The negative outlook suggests that there is more than a likely chance of revising rating downwards from ‘BBB-' to ‘BB+' in the next 12 to 24 months.”

According to a Fitch statement, the outlook revision reflects heightened risks that India's medium-to-long-term growth potential will gradually deteriorate if further structural reforms are not hastened, including measures to enhance the effectiveness of the Government and create a more positive operational environment for business and private investments.

The negative outlook also reflects India's limited progress on fiscal consolidation and, in particular, on reducing the Central Government deficit despite improvement in the financial health of State governments, the statement added.

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