Standard & Poor’s said April 25 that India’s worsening deficits and diminishing growth prospects could lead to a downgrade of Asia’s third-largest economy.
The ratings agency changed its outlook on the country from “stable” to “negative,” and said there is a one-in-three chance of a ratings downgrade if India doesn’t cut its fiscal and current account deficits, if growth prospects diminish or if progress on economic reform continues to lag under weak political leadership.
S&P says economic growth for year ending March 31 will be 5.3 percent, far lower than the central bank’s projection of 7.3 percent.
S&P restated India’s long-term rating of BBB-, just a notch above junk, sending stocks and the rupee lower.
PTI adds: Adding to (India’s) discomfort, Moody’s Analytics, a wing of global rating agency Moody’s, said India is growing below its potential, as politics is weighing on the economy with the national government acting as the “single biggest drag” on business activity.
Unfazed by these comments, Finance Minister Pranab Mukherjee said the government is not feeling panicky, but is concerned and will take note of the “timely warning.”
However, opposition leaders, latching on to the downgrades, attacked the government, saying it is solely responsible for the “policy paralysis” the last few years.
India’s outlook is still underachieving and poor management has dragged economic growth to below potential, said Moody’s senior economist Glenn Levine.
Analysts said the S&P downgrade may increase cost of overseas borrowing for local companies and make it harder to refinance debt and may have a bearing on foreign investor confidence.
S&P analyst Takahira Ogawa said, “The outlook revision reflects our view of 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 in a weakened political setting.”
S&P also lowered the ratings outlooks on software firms Infosys, Tata Consultancy Services and Wipro to negative, in line with the sovereign rating outlook. It reaffirmed the “BBB-plus” credit ratings on all three firms.