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:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

School Shooting

School Shooting

Two killed, four wounded in Washington state school shooting.  Full Article 

Sundar Pichai Elevated

Sundar Pichai Elevated

Google's Pichai to oversee major products and services.  Full Article 

Need For Reforms

Need For Reforms

Euro zone risks "relapse into recession" without structural reforms - Draghi.  Full Article 

Diwali Sales

Diwali Sales

Gold sales jump about 20 pct for Diwali - trade body  Full Article 

World Bank Rival

World Bank Rival

Three major nations absent as China launches W.Bank rival in Asia  Full Article 

Wal-Mart India

Wal-Mart India

Murali Lanka appointed as Wal-Mart India operations chief  Full Article 

Health Of Lenders

Health Of Lenders

25 European banks set to fail health checks - sources.  Full Article 

Special Report

Special Report

Why Madrid's poor fear Goldman Sachs and Blackstone  Full Article 

India Insight

India Insight

Kalki Koechlin on her role as a disabled girl in “Margarita, With a Straw”  Full Article 

Reuters India Mobile

Reuters India Mobile

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