Ahead of Budget, S&P sounds positive note on India

New Delhi: The possibility of India losing its investment grade credit rating has receded somewhat as a result of economic reforms undertaken by the government since last September, an analyst with rating agency Standard & Poor’s told Reuters.

“It is still at least a one in a three chance that we could downgrade. But the likelihood of it is less than when we first indicated the negative outlook last year,” Tan Kim Eng said in a telephone interview from Singapore.

[caption id=“attachment_609037” align=“alignleft” width=“380”]  The government has launched a raft of reforms in recent months to revive an economy. Reuters[/caption]

His comments were the most positive by S&P on India since it cut the outlook in April, citing its weakening growth prospects, widening fiscal gap and worsening political climate.

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The government has launched a raft of reforms in recent months to revive an economy headed for its slowest growth in a decade. It has opened the retail and aviation sectors to more foreign investment, hiked railway passenger fares, cut budget-busting fuel subsidies and slapped higher duties on gold imports that have widened its current account deficit.

India has a BBB- rating from S&P, the lowest investment grade among the BRIC economies. A one notch cut would relegate it to “junk” status.

“While we don’t see an urgent need to downgrade the rating, we also are not yet comfortable enough to think that the rating outlook should revert to stable,” Tan said.

“The key thing is that investors have to be reassured about is that this (the reform push) is not a one-off thing, as in they are doing all this at this moment because things have turned negative and once things stabilise that’s the end of all new efforts,” he said.

India’s economic growth, which was close to hitting double-digits before the global financial crisis in 2008, has been stuck below 6 percent for the past three quarters. In the fiscal year ending march 2013, the economy is expected to expand by 5.7-5.9 percent, the worst pace since 2002/03.

Reuters