S&P says one-in-three chance of India's rating downgrade in next two years

MDT/PTI 10 October 2012

According to the ratings agency, the negative outlook signals at least a one-in-three likelihood of a downgrade of the sovereign rating on India to 'junk' from 'negative' within the next 24 months

Mumbai: There is a "one in three" chance of a downgrade of India's sovereign rating to junk status in the next two years, reports PTI quoting ratings agency Standard & Poor's (S&P).

"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," S&P analysts Takahira Ogawa and Elena Okorochenko said in a note.

On the upside, especially given the slew of reform measures carried out by the government in the past three weeks, the outlook can be revised upwards to stable if the government succeeds in reducing fiscal deficit, improve the investment climate and revives growth, S&P said.

Factors forcing a downgrade would be a drop in growth prospects, deterioration on the external front, worsening of the political climate and slow movement on fiscal reforms.

In June, the agency revised its outlook on the present BBB- rating to negative, which is one notch above junk grade and the lowest investment rating in among the BRIC economies.

It estimates the fiscal deficit to shoot up to 6% from the targeted 5.1% this fiscal, and growth to fall to 5.5% compared to the government's revised projection of 6.5%.

"Fiscal measures to lower deficits could include a more efficient use of fuel, fertiliser, and agricultural subsidies, or the implementation of a goods and service tax," it suggested. .

S&P has drawn attention to the risks on the political front like Mamata Banerjee-led Trinamool Congress quitting the ruling alliance, impending state elections and the general elections in 2014.

Considering that the government is in a minority, passage of amendments to allow additional foreign ownership in insurance and pension will be "more challenging", S&P said.

S&P had come out with a note asking for action from the political establishment and Prime Minister Manmohan Singh in June, when "policy paralysis" was a buzzword, to avoid being junked.

Last month, it welcomed the slew of reforms like allowing foreign holdings in multi-brand retail, aviation and media, but kept the outlook unchanged.

S&P's rivals Moody's and Fitch had also revised their respective outlooks on the sovereign rating to negative following the gloom on the economic front caused by factors both external and domestic.

The Finance Ministry had earlier said it would present the country's strengths to the rating agencies to avoid a downgrade.

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M G WARRIER

1 decade ago

High time rating agencies, or for that matter whosoever judges the performance of economies changed their parameters to factor in the inherent strengths and weaknesses of nations. Countries like India with huge resources including human resources and much less consumption needs as compared to ‘developed’ countries and nations which are permanently dependent on outside markets for sustenance and perennially building up capacities for unproductive purposes like war and journey to Mars are measured on the same scale. This is unacceptable. To counter this tendency, India should set up a purely research-based rating agency with expertise of international standard. Geographical area, population, resources, potential for development, sovereign debt and all should be factored in while making comparisons.