New Delhi: Ratings agency Standard & Poor’s (S&P) yesterday said its outlook on India remained negative and there was a one-in-three chance of a downgrade within the next 12 months. But the government asserted that there was nothing to worry about as it was taking the right measures to keep the country on a sustainable growth path.
“The outlook on the long-term rating remains negative,” S&P said in a report, affirming its ‘BBB minus’ long-term and ‘A-3’ short-term unsolicited sovereign credit ratings on India.
This is the lowest investment grade rating. Any downgrade would take India’s sovereign ratings to junk status, making overseas borrowings difficult and costlier.
The agency’s ratings came just within a month of the government’s meeting with representatives of S&P here, during which it made a strong pitch for an upgrade.
The government expressed disappointment over the observations of the ratings agency and said it would continue to take steps to boost economic growth and curb deficits.
“I think it is a narrow way of looking at reforms,” Economic Affairs Secretary Arvind Mayaram told reporters here.
“We are on the right track, and I don’t think there is anything to worry about,” said Mayaram.
Added chief economic advisor in the finance ministry, Raghuram Rajan: “It is disappointing that S&P has not seen it fit to improve its outlook for India, especially given that it acknowledges the important steps taken by the Indian government in recent months.”
“International institutional investors, who have invested over $17bn into India so far this year, do seem to have a different view. The government will continue to do what is necessary to keep India on a stable, sustainable, and strengthening growth path,” Rajan said in a statement.
S&P’s report came at a time when Finance Minister P Chidambaram was in Paris to woo overseas investors by selling India’s growth story.
The agency, however, said there was scope to upgrade India’s sovereign ratings if the government unleashed public and private investments to spur growth.
“High fiscal deficits and a heavy government debt burden remain the most significant constraints on our sovereign ratings on India. Nevertheless, the government has regained control of public finances and embarked on fresh structural reforms since September 2012,” S&P credit analyst Takahira Ogawa said.
India’s long-term growth prospects, underpinned by its favourable demographic profile, and its high foreign exchange reserves support the ratings. The country’s large fiscal deficit and debt, as well as its lower middle-income economy, constrain the ratings, S&P said.
The negative outlook signals at least a one-in-three likelihood of a downgrade in the next 12 months.
“We may lower the rating if we conclude that slower government reforms than we currently expect would not lead economic growth to recover to levels experienced earlier this decade,” it said.
According to the agency, India’s real GDP growth per capita is likely to rebound to 4.6 percent in the current financial year from 3.6 percent in the previous year. This is higher than most of its peers but substantially lower than about six percent on average over the five years up to the fiscal year ended March 2012, it said.
IANS
