India faces less risk of credit rating downgrade: S&P
NEW DELHI (Reuters) - The possibility of India losing its investment-grade credit rating has receded somewhat as a result of economic reforms undertaken by the government since last September, an analyst with rating agency Standard & Poor's told Reuters on Thursday.
"It is still at least a one in a three chance that we could downgrade. But the likelihood of it is less than when we first indicated the negative outlook last year," Tan Kim Eng said in a telephone interview from Singapore.
His comments reflect a softening of the stand by the rating agency just a few weeks after it reiterated a warning in December about cutting India's rating to junk, citing a wide fiscal deficit and a heavy debt burden.
India has a BBB- rating from S&P, the lowest investment grade among the BRIC group of large emerging economies and one notch above "junk" status.
The threat of a rating downgrade along with electoral challenges posed by the worst economic slowdown in a decade has made Prime Minister Manmohan Singh's government rediscover an appetite for politically unpalatable but vital reforms.
It has opened the retail and aviation sectors to more foreign investment, hiked railway passenger fares, cut budget-busting fuel subsidies and slapped higher duties on gold imports that have widened its current account deficit.
"We had no indication that they would be rolled out. So, to some extent, it is a positive surprise," Tan said.
"Now, perhaps there are some indications that these reforms could bring India's structural growth back up again."
Economists polled by Reuters earlier this week forecast that the measures taken by New Delhi since late last year would be enough to stave off downgrade threats issued by both S&P and its rival Fitch last year.
A majority of economists polled, 14 of 23, said steps taken thus far were enough to convince the rating agencies, even though the economists expected the government to miss its fiscal deficit target for the year. For full poll data click on
India's economic growth, which was close to hitting double-digits before the global financial crisis in 2008, has been stuck below 6 percent for the past three quarters. In the fiscal year ending March 2013, the economy is expected to expand by about 5.5 percent, the worst pace since 2002/03.
Growing economic pains are making it tougher for Prime Minister Singh to fund flagship welfare programmes ahead of a national election due by mid-2014.
To revive investor sentiment, Finance Minister P. Chidambaram has delayed until April 2016 controversial tax changes meant to combat evasion, after the new rules slowed capital inflows. He has put welfare, defence and road projects on the chopping block to hit a tough fiscal deficit target of 5.3 percent of GDP by March.
In an unusual move, he held roadshows in Asia and Europe this month to convince investors about India's commitment to economic reforms.
"The key thing is that investors have to be reassured about is that this (the reform push) is not a one-off thing, as in they are doing all this at this moment because things have turned negative and once things stabilise that's the end of all new efforts," Tan said.
"While we don't see an urgent need to downgrade the rating, we also are not yet comfortable enough to think that the rating outlook should revert to stable."
With national elections barely 15 months away, investors are worried the government could abandon its reform drive and unveil populist measures in the federal budget in February.
Chidambaram has promised to present a growth friendly budget on February But Tan said he was not expecting big-bang reforms in the budget.
"At the end of the day, our expectation from the next budget is that there will be no major structural reforms included. Because at the end of the day, this is an election year budget."
(Additional reporting by Deepti Govind in BANGALORE; Polling by Ashrith Rao Doddi; Editing by Ross Colvin & Kim Coghill)
- Tweet this
- Share this
- Digg this
Trending On Reuters
Prime Minister Narendra Modi may consider using an executive order to push through laws overhauling the insurance and coal sectors, if the increasingly fractious parliament fails to pass them soon, two government officials said on Friday. Full Article