S&P reaffirms negative outlook on India rating
Mumbai, May 18, 2013
Standard & Poor's reiterated its negative outlook on India's credit rating, which is one notch above "junk", warning of the need to follow through on reforms and dealing a blow to a government that had recently pitched for an upgrade.
The rating agency said the main drag on India's rating is a high fiscal deficit and heavy government borrowing, although it also said India's position had improved over the past year.
S&P's statement came as Finance Minister P Chidambaram was in Paris as part of a road show series that in recent months has taken him to New York, Singapore, Tokyo, London, Hong Kong, Frankfurt, Ottawa and Toronto.
"We have indicated compared to one year ago, there (is) some easing of the pressure towards the downgrade of the rating," S&P credit analyst Takahira Ogawa said on a conference call yesterday.
"But nonetheless there is still more than one-third of chance for downgrade unless we see significant improvement of the factors that we mentioned."
India's benchmark 10-year yield rose four basis points to 7.41 per cent from levels before S&P issued a statement affirming the BBB- rating and negative outlook. The yield closed at 7.39pc on Thursday.
Since taking office in July, Chidambaram has pushed a series of reforms aimed at shoring up government finances and reviving investor confidence in an economy that grew at just 5pc in the fiscal year that ended in March, its worst in a decade.
However, the most recent parliamentary session ended early amid heated political acrimony over recent corruption scandals, stranding several pieces of legislation including a land reform bill.
Chidambaram has said he will stick to a budgeted fiscal deficit target of 4.8 per cent of gross domestic product in the fiscal year ending March 2014 after being able to trim the deficit to around 5 per cent in the previous fiscal year.
"We may revise the outlook to stable if the government carries through with its plans to unleash public and private investments (for example, by enacting the land acquisition bill), to implement a nationwide government sales tax, or to further trim fuel and fertiliser subsidies," S&P said.
S&P and its rival Fitch had cut their outlook on India to negative last year, warning the country of a possible rating downgrade to "junk" on worsening public finances, a slowing economy and persistent political gridlock in New Delhi.
In an April 25 meeting with S&P, Indian officials argued the outlook should be changed, and the country deserved an upgrade for actions taken by Prime Minister Manmohan Singh's government to put finances in order and bolster investor confidence.-Reuters
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