S&P's retains India's sovereign rating at 'BBB-' but warned a downgrade

The Rating agency Standard & Poor’s on Friday retained India's sovereign rating at 'BBB-' but it warned the government that it may downgrade it to junk grade if the govt. fails to pursue reforms and check deterioration in fiscal and current account deficits.

S&P's while retaining the rating at ‘BBB -’ with a negative outlook, said there is at least a one-in-three likelihood of a downgrade within the next 12 months.

The rating agency took its stand warned the Indian government a further downgrade, even though the Finance Ministry officials had pitched for a ratings upgrade  in a meeting last month, arguing that the government has been taking steps to contain fiscal deficit and promote investments.

A ‘BBB-’ is the lowest investment grade and a downgrade would mean pushing the country’s sovereign rating to junk status, making overseas borrowings by corporates costlier.

The most significant constraints on our sovereign ratings are high fiscal deficits and a heavy government debt. Despite, the government has regained control of public finances and embarked on fresh structural reforms since September 2012.

S&P said although part of this slower growth in India is cyclical, rigidities in the labour and product markets and inadequate infrastructure constrain the country’s medium-term growth prospects.

“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,” the global rating agency said.