India questions S&P's Methodology for giving it a negative outlook yesterday

The Indian government responding strongly today and questioned the assessment methodology of Standard & Poor's warning of possible downgrade of India's sovereign rating.

As it is earlier known S&P's in its statement yesterday said it may downgrade Indian sovereign rating to unstable if the government doesn't take required reform steps. Soon after this the Finance Ministry stormed into action with chief economic adviser Raghuram Rajan challenging S&P's assessment.

"It is disappointing that S&P has not seen it fit to improve its outlook for India, especially given that it acknowledges the important steps taken by the Indian government in recent months. International institutional investors, who have invested over $17 billion into India so far this year, do seem to have a different view. The government will continue to do what is necessary to keep India on a stable, sustainable , and strengthening growth path," Rajan said.

After government's Cheif economist the other officials also joined him and even went to the extent of questioning the methodology adopted by the agency.

"India's fiscal deficit and debt are not high as compared to the other large economies of the world. In fact, many higher-rated advanced large economies have a much higher level of sovereign debt," said an official.

The government mainly questioned on the agency's refusal to acknowledge the pick up in economic growth and the moderate inflation levels. It also said that investment was picking up and the agency's concerns over red tape and the cabinet committee of investment were incorrect.

There were at least five other areas that, officials said, the agency did not appreciate. First, India's debt is largely dominated in local currency. Second, they said, the government uses flexibility offered by some of the tools to access loans from the domestic markets, and was not be dependent on international markets. In addition, they pointed to improvement in shorter-term debt indcators and measures of external debt to make a case that government debt is well within the comfort zone which is better than many peer group countries. Lastly, India's forex reserves also provide a significant measure of safety to external creditors, a point that "S&P has noted, but not adequately" , said officials.