S&P warns of India downgrade again, watching reform implementation

Rating agency Standard & Poor’s has again warned that there is a significant chance of cutting India’s sovereign rating in the future and pegged the country’s fiscal deficit at 6 percent of GDP for FY13 , according to a report on CNBC-TV18.

It sees a 1 in 3 likelihood of downgrade in 24 months “if growth prospects dim, external position deteriorates, political climate worsens or fiscal reforms slow”, according to the report.

S&P sees the RBI remaining cautious in conducting monetary policy.

Speaking to the TV Channel S&P said it is waiting to see the implementation of the recent reform initiatives.

S&P, however, has said it will revise India’s rating outlook to stable if the government implements steps to cut structural fiscal deficit, improve investment climate and if foreign direct ivnestment in various sectors is implemented successfully.

The warning comes at a time when the UPA government has shown a political resolve to take forth its stalled reform agenda.

However, analysts and experts have expressed their doubts about the government’s ability to pass the reforms like opening up of FDI in retail in Parliament.

The concerns are not misplaced given the set back the ruling coalition got after the announcement of the steps. Refusing to pop the reform pill, the Trinamool Congress has severed its ties with the UPA, putting the coalition in a politically vulnerable situation.