India's Credit Could Fall to Junk

05/20/2013 7:00 am EST


India is still at significant risk of having its credit rating downgraded to junk status by Standard & Poor's, despite the government's efforts to secure an upgrade, writes Rebecca Bundhun of The National.

S&P on Friday reiterated its negative credit outlook on India, with its rating sitting just one notch above "junk."

"The negative outlook signals at least a one-in-three likelihood of a downgrade within the next 12 months," S&P said. "High fiscal deficits and a heavy government debt burden remain the most significant constraints on our sovereign ratings on India...Despite the initiatives from the cabinet committee on investments to cut red tape on infrastructure and power projects, that committee's success in raising investment growth remains uncertain."

India's economic problems came into sharp focus when S&P published a report last June, titled "Will India be the first BRIC fallen angel?" It highlighted that the country was at risk of becoming the first member of the influential group of developing nations to lose its investment-grade rating.

The government has introduced a slew of measures since last September, including opening up the retail and aviation sectors to more foreign investment and cutting fuel subsidies in an effort to boost economic growth, which is expected to have fallen to a decade low in the past financial year.

Officials last month met S&P to argue that the outlook should be upgraded.

The ratings agency said that scenarios that could result in a downgrade included weak investment growth, a worsening in the fiscal and current account deficits, or a failure to increase the electricity supply to meet growing demand.

"We may revise the outlook to stable if the government carries through with its plans to unleash public and private investments (for example, by enacting the land acquisition bill), to implement a nationwide government sales tax, or to further trim fuel and fertilizer subsidies," the agency added.

"We believe these measures could restore India's robust growth, and thereby ameliorate its public debt trajectory," S&P said.

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