Maintains negative outlook on sovereign credit rating, warns of downgrade after elections.
International rating agency, Standard & Poor’s, affirmed India’s sovereign credit rating at ‘BBB-’ and maintained the negative outlook on Thursday. However, it warned of a possible rating downgrade in the review after general elections in 2014.
“The negative outlook indicates that we may lower the rating to speculative grade next year if the government that takes office after the general election does not appear capable of reversing India’s low economic growth,” said S&P.
India’s sovereign credit rating stands just a notch away from junk status. In the previous review, undertaken in May, the rating agency had indicated one-in-three likelihood of a downgrade within a year.
S&P said that lack of progress in structural reforms, shortfalls in basic services and burden from its public finance may weigh on the country’s credit rating. Going forward, macroeconomic developments hinged on the results of the general elections.
“Power has alternated between the Congress Party and the BJP Party since 1998. The next government, regardless of its composition, will face several challenges,” said S&P.
It said the current government tried to plug the fiscal deficit but used one-off measures to achieve the target. The level of election spending and evolution of commodity prices will play a major role in how the government manages to stay within its target of 4.8% for current fiscal.
“Using a broader measure of general government deficits, we project a 7.2% of GDP deficit for fiscal 2014,” said S&P.
The ratings agency, that had cut India’s credit rating outlook to negative last year, said it will undertake a review after the general elections when the new government has announced its policy agenda.
“If we believe that the agenda can restore some of India’s lost growth potential, consolidate its fiscal accounts and permit the conduct of an effective monetary policy, we may revise the outlook to stable,” said S&P, adding it could lower the rating within a year if policy drift continued.
On the brighter side, a robust participatory democracy and a free press, low external debt and ample foreign exchange reserves, increasingly credible monetary policy with a largely freely floating exchange rate were identified as India’s key strengths.
“Even though the Negative Outlook is maintained, we think S&P has effectively given the next government a window to usher in economic reforms,” said analysts at Barclays.
International rating agency, Standard & Poor’s, affirmed India’s sovereign credit rating at ‘BBB-’ and maintained the negative outlook on Thursday. However, it warned of a possible rating downgrade in the review after general elections in 2014.
“The negative outlook indicates that we may lower the rating to speculative grade next year if the government that takes office after the general election does not appear capable of reversing India’s low economic growth,” said S&P.
India’s sovereign credit rating stands just a notch away from junk status. In the previous review, undertaken in May, the rating agency had indicated one-in-three likelihood of a downgrade within a year.
S&P said that lack of progress in structural reforms, shortfalls in basic services and burden from its public finance may weigh on the country’s credit rating. Going forward, macroeconomic developments hinged on the results of the general elections.
“Power has alternated between the Congress Party and the BJP Party since 1998. The next government, regardless of its composition, will face several challenges,” said S&P.
It said the current government tried to plug the fiscal deficit but used one-off measures to achieve the target. The level of election spending and evolution of commodity prices will play a major role in how the government manages to stay within its target of 4.8% for current fiscal.
“Using a broader measure of general government deficits, we project a 7.2% of GDP deficit for fiscal 2014,” said S&P.
The ratings agency, that had cut India’s credit rating outlook to negative last year, said it will undertake a review after the general elections when the new government has announced its policy agenda.
“If we believe that the agenda can restore some of India’s lost growth potential, consolidate its fiscal accounts and permit the conduct of an effective monetary policy, we may revise the outlook to stable,” said S&P, adding it could lower the rating within a year if policy drift continued.
On the brighter side, a robust participatory democracy and a free press, low external debt and ample foreign exchange reserves, increasingly credible monetary policy with a largely freely floating exchange rate were identified as India’s key strengths.
“Even though the Negative Outlook is maintained, we think S&P has effectively given the next government a window to usher in economic reforms,” said analysts at Barclays.
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