S&P cuts India's outlook to negative, warns of downgrade
25 April 2012 2:49 PM GMT
S&P said India's real GDP per capita growth will likely remain moderately strong at 5.3 per cent in 2012-13, compared with about 6 per cent on average over the prior five years.
'India's favourable demography and the increasing middle- class population will undergird its medium-term growth prospects, which in turn will support the sovereign ratings,' Ogawa said.
India's favourable long-term growth prospects and high level of foreign exchange reserves support the ratings, the agency said. On the other hand, India's large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings, it added.
'High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle- with the next elections to be held by May 2014 - and the current political gridlock,' S&P said.
Such reforms include reducing fuel and fertiliser subsidies, introducing goods and services tax (GST), and easing of restrictions on foreign ownership of various sectors such as banking, insurance, and retail sectors, it said.
On the other hand, S&P said the ratings 'could stabilise again if the government implements initiatives to reduce structural fiscal deficits and to improve its investment climate'.
Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertiliser subsidies, or an early implementation of the GST.
Reacting to the rating action, a senior Finance Ministry official said India's growth rate is intact and robust and it is not going to have any major impact on the country.
'We are not overtly concerned about revision. Other nations make India look good,' the official added.
'India's favourable demography and the increasing middle- class population will undergird its medium-term growth prospects, which in turn will support the sovereign ratings,' Ogawa said.
India's favourable long-term growth prospects and high level of foreign exchange reserves support the ratings, the agency said. On the other hand, India's large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings, it added.
'High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle- with the next elections to be held by May 2014 - and the current political gridlock,' S&P said.
Such reforms include reducing fuel and fertiliser subsidies, introducing goods and services tax (GST), and easing of restrictions on foreign ownership of various sectors such as banking, insurance, and retail sectors, it said.
On the other hand, S&P said the ratings 'could stabilise again if the government implements initiatives to reduce structural fiscal deficits and to improve its investment climate'.
Fiscal measures could include an increase in domestic prices and a more efficient use of fuel and fertiliser subsidies, or an early implementation of the GST.
Reacting to the rating action, a senior Finance Ministry official said India's growth rate is intact and robust and it is not going to have any major impact on the country.
'We are not overtly concerned about revision. Other nations make India look good,' the official added.
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