S&P downgrades India’s long-term credit rating to negative
25 Apr 2012
Credit rating agency Standard & Poor's has revised India's long-term rating outlook to `negative' (BBB-) from `stable'(BBB+), amidst what it said slow fiscal progress and deteriorating economic indicators.
While the agency reaffirmed India' current sovereign credit rating at investment grade, it suggested the probability of a downgrade is now higher than before.
The agency has based its assessment on India's poor fiscal performance and a lacklustre budget that did not inspire confidence. S&P's action is also in part inspired by British telecom major Vodafone's displeasure at the finance minister's plan for retrospective taxation, that it said would retard FDI flows.
The only redeeming factor for India is its favorable long-term growth prospects and high level of foreign exchange reserves. That, however, is counterbalanced by its huge external debt, ballooning fiscal deficits and its lower middle-income economy status, the agency noted.
With little progress on economic reforms, S&P expects India's economic growth could fall to 5.3 per cent in 2012-13 against the government's projection of a 7 per cent GDP growth in the current fiscal.
"The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting," said Standard & Poor's credit analyst Takahira Ogawa.
