Global rating agency S&P today warned that “the balance of risk factors” for India’s sovereign credit rating could tilt towards ‘negative’ zone this year, given the headwinds being faced by the country on domestic and global fronts.
However, Standard and Poor’s (S&P) maintained that it does not expect to downgrade or revise its ‘stable’ outlook on the investment grade ‘BBB-’ long-term sovereign credit rating on India in the near future.
At the same time, S&P said India is battling with high inflation, a weak government fiscal position and slower economic growth on domestic front, while European sovereign debt problems could add to the pressures for the country.
“Like many countries, India is facing some challenges on a few fronts, and the balance of risk factors for the sovereign credit rating may be shifting slightly toward the negative,” S&P Ratings Services said today in a report.
“Standard & Poor’s doesn’t expect to downgrade or revise the outlook on the long-term rating in the near future.
However, the negative factors, combined with the government’s weak policy formulation and implementation, may lead us to a tipping point,” S&P credit analyst, Mr Takahira Ogawa, said.
“India has been grappling with a political gridlock and the government’s ability to implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence,” he said.
As per the report titled ‘Several Factors Could Weigh On India’s Current Stable Sovereign Rating In 2012’, high inflation, a weak government fiscal position and slower economic growth have hurt investor confidence in the rupee, triggered a capital outflow and weighed on the stable sovereign outlook on India in 2012.
“Our stable outlook on the ‘BBB-’ long-term rating on India currently reflects our expectation of strong economic growth in the medium term and gradually improving fiscal performances,” Mr Ogawa said.
He further noted that S&P has “factored in inflation and political uncertainty, which may lead to higher government subsidies and stalled reform efforts’’.
At the recently held World Economic Forum (WEF) annual meeting in Davos, S&P President, Mr Douglas Peterson, had said they have an investment grade rating with a stable outlook on India and the country is more likely to improve further on this.
Brushing aside the concerns of slow reforms and the perceived notion of ‘policy-paralysis’, he had said: “In a democracy, the policies are made after a prolonged dialogue and that is indeed a healthy practice.”