Standard & Poor’s (S&P) yesterday downgraded India’s credit outlook to negative as a weakening economy and big public deficit put the country’s prized investment grade rating at risk.
The agency maintained India’s rating at “BBB-,” but warned it faces at least a one-in-three chance of losing its status if its financial situation deteriorates.
The “BBB-” is one notch above “junk,” which carries a higher risk of default and would mean new Delhi would have to pay higher interest rates on its public borrowing.
Fitch Ratings and Moody’s Investors Service also grade India one step above so-called junk status.
“India’s investment and economic growth have slowed and its current-account deficit has widened, resulting in a weaker medium-term credit outlook,” S&P credit analyst Takahira Ogawa said.
Asia’s third-largest economy is battling stubborn inflation, the widest budget deficit of all major emerging economies, a weak fiscal position and slower growth on the domestic front.
Added to that is uncertainty in global financial markets and Europe’s long-running sovereign debt crisis.
“We are revising the outlook on the long-term ratings on India to negative,” Ogawa added in a statement.
The move reflected “at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow,” he said.
India’s economic reform process has been paralyzed by a string of political scandals that has beset Indian Prime Minister Manmohan Singh’s Congress-led government,
S&P in 2007 hiked India’s credit rating to investment-grade, a move that paved the way for global funds to invest in government bonds and other debt in the country.