India ratings constrained by slowing growth, says S&P

MUMBAI Fri Mar 15, 2013 2:53pm IST

1 of 2. Labourers work at a construction site as sun sets in New Delhi February 16, 2008.

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MUMBAI (Reuters) - The slowdown in India's economic growth is less supportive for the country's sovereign credit ratings, and the government may find it challenging to meet the revenue projections in its 2013/14 budget, an analyst at Standard & Poor's said on Friday.

The comments, although not drastically different from the rating agency's previous stance, nonetheless hit Indian shares and bonds, highlighting lingering concerns that the country may lose its investment-grade rating.

S&P rates India at "BBB-minus", one notch above junk, and cut its outlook to "negative" from "stable" last year, denoting a one-in-three possibility of a ratings downgrade.

"Economic support has weakened somewhat," Kim Eng Tan, senior director of Asia-Pacific Sovereign Ratings said during a webcast about global ratings on Friday.

India's economic growth has slowed dramatically to just 4.5 percent in the October-December quarter of 2012 from more than 9 percent in early 2011.

Tan added that the revenue projections in the recent budget for the next fiscal year could pose "significant challenges" for the government, although he added it was not "entirely out of reach".

The budget for the fiscal year starting in April relies on a projected increase in revenue to fund a planned 16 percent rise in spending, while still intending to narrow the fiscal deficit to 4.8 percent of gross domestic product from 5.2 percent in the current year.

However, some analysts have expressed concerns the budget may be too optimistic, especially about tax revenues, given the slowdown in economic growth.

"The economic conditions will have to remain relatively strong" for the government to meet its projections and meet its fiscal deficit targets, Tan said on Friday.

The BSE Sensex was down 0.5 percent as of 2:16 p.m., while the benchmark 10-year yield rose 2 basis points to trade flat on the day at 7.86 percent after the S&P comments.

(Reporting by Subhadip Sircar and Neha Dasgupta; Editing by Rafael Nam & Kim Coghill)

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