India’s stable rating faces risk: S&P

High Inflation, Weak Fiscal Position, Sluggish Growth Weigh On Outlook

New Delhi: India's stable rating outlook faces some challenges due to high inflation, weak fiscal position and slower economic growth, a report by global ratings agency Standard &Poor's cautioned on Monday. 

    The warning came in a report titled 'Several Factors could weigh on India's Current Stable Rating in 2012'. S&P has an investment grade BBB- rating for India. 
    "Standard & Poor's Ratings Services doesn't expect to revise the rating outlook on India in the near future. However, if the Indian government fails to address the structural problems in the economy and growth prospects decline significantly in the medium term (several years), the sovereign rating could come under pressure," the report said. 
    It said India, like many countries, was facing some challenges on a few fronts, and the balance of risk factors for the sovereign credit rating may be shifting slightly to wards the negative. "High inflation, a weak government fiscal position, and slower economic growth have hurt in vestor confidence in the rupee, triggered a capital outflow, and weighed on the stable sov ereign outlook on India in 2012," the report said. 
    "Our stable outlook on the 'BBB-' long-term rating on India currently reflects our expectation of strong economic growth in the medium term and gradually improving fiscal performances," said Takahira Ogawa, ratings analyst at Standard & Poor's. "We have factored in inflation and political uncertainty, which may lead to higher government subsidies and stalled reform efforts," he said. 
    The report said, given the nature of its coalition, the Indian government's ability to implement policies has weakened due to the slow and complex decision making. The report said it expects the implementation of the Goods and Services Tax to be delayed further. 
    "In our view, how and to the extent to which the UPA government can implement measures will be vital to boosting confidence in India," the report said. It added that weaker economic growth prospects and high commodity prices could hurt the government's fiscal consolidation efforts. 
MILD THREAT 
Govt has found it difficult to implement policies 
General government deficit to remain high 
Balance of risk factors for stable sovereign rating (BBB-) maybe shifting slightly towards negative Weak global markets, European debt problems could add to pressure 
GDP growth estimated at 6.8% for 2011-12 and 6.5% for 2012-13 
Consolidated government deficit estimated at 8.5% of GDP in 2011-12 and 8.1% in 2012-12 
India's medium-term growth prospects remain strong, positive rating factor