Mumbai/New Delhi, April 25: Ratings agency Standard & Poor’s Wednesday lowered its outlook on India to negative from stable, and warned of a ratings downgrade citing deteriorating economic indicators and slow progress on fiscal reforms in the backdrop of a ‘weakened political setting’.
Standard & Poor’s credit analyst Takahira Ogawa said there was one-in-three likelihood of India’s sovereign ratings downgrade.
The ratings agency kept India’s long-term rating unchanged at BBB-, which is the lowest investment grade rating.
‘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,’ Ogawa said.
Ogawa said India’s real per capita gross domestic product (GDP) growth will fall to 5.3 percent in 2012-13 as compared to an annual average growth of around 6 percent registered in the last five years.
Reacting to the revision, Finance Minister Pranab Mukherjee said the government is concerned over the lowering of outlook, but there is no need to panic.
‘I am concerned, but I don’t feel panicky because I am confident that our economy will grow by around 7 percent, if not plus. We will be able to control fiscal deficit and it will be around 5.1 percent,’ Mukherjee told reporters in New Delhi.
The finance minister empahsised that the government was hopeful to meet the economic growth and fiscal deficit targets.
On economic reforms, Mukherjee admitted that there have been delays but the government was taking steps to push up the reforms process.
Standard & Poor’s affirmed ‘A-3′ short-term unsolicited sovereign credit ratings on India.
In a media conference call, Ogawa said India’s fiscal deficit was likely to widen to around 8 percent in the current financial year as against the government’s budgetary target of 5.1 percent.
Ogawa said economic growth was likely to remain at around 7 percent.
‘The negative outlook signals at least a one-in-three likelihood of the downgrade of India’s sovereign ratings within the next 24 months. A downgrade is likely if the country’s economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow,’ Ogawa said.
On the other hand, the ratings could stabilise again if the government implements initiatives to reduce structural fiscal deficits and to improve its investment climate, Standard & Poor’s said in a statement.
‘Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertiliser subsidies, or an early implementation of the goods and service tax.’