India could be first BRIC country to lose investment rating: warns S&P

Slowing GDP growth and political roadblocks to economic policymaking are just some of the factors pushing up the risk that India, which curently has a BBB-/Negative / A-3 long-term sovereign credit rating, could lose its investment-grade rating, says a new report by Standard & Poor's Ratings Services, Will India Be The First BRIC Fallen Angel?

The 'BBB-' rating on India is currently one notch above speculative grade, which the ratings agency warns could be downgraded. A further downgrade implies the country would lose its investment grade rating, altogether.

The report states that the Indian government's reaction to potentially slower growth and greater vulnerability to economic shocks could largely determine whether the country can maintain an investment-grade rating or become the first "fallen angel" among the BRIC nations (which also comprise Brazil, Russia, and China).

"Setbacks or reversals in India's path toward a more liberal economy could hurt its long-term growth prospects and, therefore, its credit quality," said Standard & Poor's credit analyst Joydeep Mukerji.

Standard & Poor's revised the rating outlook to negative from stable in April 2012 because of India's lower GDP growth prospects and the risk that its external liquidity and fiscal flexibility may erode.

The negative outlook also reflects the risk that Indian authorities may be unable to react to economic shocks quickly and decisively enough to maintain the country's current creditworthiness.