S&P cites India fiscal deficit, debt, as rating constraints

MUMBAI Wed Dec 12, 2012 4:59am IST

1 of 2. An employee uses an electronic machine to check an Indian currency note inside a bank in Allahabad December 16, 2011.

Credit: Reuters/Jitendra Prakash/Files

Related Topics

MUMBAI (Reuters) - The Indian government's wide fiscal deficit and a heavy debt burden are the most "significant rating constraints" to the country's sovereign rating, Standard & Poor's said, reiterating its warning that India faces a one-in-three chance of being downgraded to junk over the next 24 months.

"Broadly, India's fiscal profile is a rating weakness," S&P said in a note, echoing views made in an October note.

"Given the political cycle - with the next elections to be held by March 2014 - and the current political gridlock, we expect only modest progress in fiscal and public sector reforms," it said.

The rating agency, which in April cut India's outlook rating to negative from stable, said it did not expect the government to reach its fiscal deficit target of 4.5 percent of gross domestic product in the fiscal year that ends in March 2014.

India has a BBB- rating from S&P, the lowest investment grade among the BRIC economies.

"A rating downgrade is likely if India's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," S&P said.

However, increasing domestic fuel and fertiliser prices, and more efficient use of subsidies could help in stabilising India's rating, it said.

Asia's third largest economy grew at its slowest pace in three years at 5.3 percent in the September quarter and is on track to post its weakest growth in a decade even as a Congress-led minority government struggles to pass key legislative reforms to attract foreign investment.

The ratings agency sees the headline inflation rate, measured by wholesale prices, to remain a risk for growth and low interest rates.

India's inflation may have picked up in November to 7.6 percent as a weaker rupee added to the cost of imported fuel, a Reuters poll of 32 economists showed.

(Reporting by Neha Dasgupta and Suvashree Dey Choudhury; Editing by Tony Munroe and Robert Birsel)

FILED UNDER:
  • Most Popular
  • Most Shared

Coal Sector

REUTERS SHOWCASE

Border Talks

Border Talks

India names Ajit Doval as special envoy for China border talks.  Full Article 

WTO Deal

WTO Deal

U.S. seeks to step up India trade talks  Full Article 

Phone Masts

Phone Masts

American Tower to buy Bharti Nigeria phone masts for $1.1 billion  Full Article 

Plunging Oil Prices

Plunging Oil Prices

Oil price seen falling to $60 if OPEC does not cut output  Full Article 

Shadow Banking

Shadow Banking

Reserve Bank planning more measures for NBFCs.  Full Article 

Auto Sector

Auto Sector

Hyundai Motor, Kia Motors lift 2014 global sales target on China, emerging markets  Full Article 

Raising Money

Raising Money

SpiceJet says in early talks with investors for fresh capital.  Full Article 

Market Eye

Market Eye

Sensex, Nifty rise to record after China, ECB stimulus boosts risk appetite.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage