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

India-WTO Standoff

India-WTO Standoff

India threatens to derail WTO deal, prompts angry U.S. rebuke  Full Article 

Economic Pulse

Economic Pulse

New govt promises low and stable tax regime for economic revival.  Full Article 

IPO Probe Ends

IPO Probe Ends

Facebook says SEC's IPO probe ends, extending WhatsApp closing date  Full Article 

World Stocks

World Stocks

Goldman Sachs downgrades stocks to neutral for short term  Full Article 

Disappointing Results

Disappointing Results

Amazon's far-reaching ambitions, lack of profits, unnerve investors  Full Article 

Global Growth

Global Growth

IMF cuts outlook, warns of stagnation risk in rich nations  Full Article 

Market Eye

Market Eye

Nifty retreats from record highs on profit taking.  Full Article 

Waning Enthusiasm

Waning Enthusiasm

Markets' post-election enthusiasm lost on consumers.  Full Article 

Reuters India Mobile

Reuters India Mobile

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