S&P downgrades India’s credit outlook to negative

NEW DELHI - Agence France-Presse

A laborer drinks water while harvesting wheat crop at a field in Jhanpur village. REUTERS photo

Standard & Poor’s downgraded yesterday India’s credit outlook to negative as a weakening economy and big public deficit puts the country’s prized investment grade rating at risk.

The agency maintained India’s rating at BBB-, but warned it faces at least a one-in-three chance of losing its status if its financial situation deteriorates.

The “BBB-” is one notch above “junk,” which carries a higher risk of default and would mean New Delhi would have to pay higher interest rates on its public borrowing.

“India’s investment and economic growth have slowed and its current-account deficit has widened, resulting in a weaker medium-term credit outlook,” S&P credit analyst Takahira Ogawa said.

Asia’s third-largest economy is battling stubborn inflation, the widest budget deficit of all major emerging economies, a weak fiscal position and slower growth on the domestic front.

Added to that is uncertainty in global financial markets and Europe’s long-running sovereign debt crisis.
“We are revising the outlook on the long-term ratings on India to negative,” Ogawa added in a statement.

The move reflected “at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow,” he said.

India’s economic reform process has been paralyzed by a string of political scandals that has beset Prime Minister Manmohan Singh’s Congress-led government, S&P in 2007 hiked India’s credit rating to investment-grade, a move that paved the way for global funds to invest in government bonds and other debt in the country.