With the ongoing economic and political turmoil India?s credit profile has come under some scrutiny, said Standard & Poor?s Ratings Services in an article, ?Will Ratings On India Withstand Triple Whammy Of Rising Inflation And Worsening Fiscal And Current Account Deficits??
?India?s credit profile has worsened in the past twelve months but we believe the upside and downside risks to its ?BBB-? rating are currently balanced,? said Standard & Poor?s credit analyst Takahira Ogawa. ?This assumes, however, that the reasons for credit deterioration are temporary. If we conclude that they are longer lasting, India?s credit ratings could be lowered again to speculative grade.?
The Congress-Party-led United Progressive Alliance (UPA) government faces challenges such as rising fiscal deficits (from already high levels by international standards), rising inflation, and, to a lesser extent, widening current account deficits. And earlier this week the leftist parties announced their withdrawal of support from the UPA, which could complicate the early implementation of fiscal-discipline measures.
?These risks, however, are still mitigated by India?s deep domestic markets, which allow it to finance large fiscal deficits without recourse to external funds, and by its strong external liquidity,? said. Ogawa. ?The coming weeks and months will be critical as national elections approach. Political compulsions may make it difficult for the government to take timely measures to staunch fiscal or monetary slippages. Failure to respond adequately to negative developments could point to a sustained deterioration in macroeconomic stability and thus increase the probability that the government?s ratings could be lowered to speculative grade.?
India?s debt rating was raised to investment grade by Standard & Poor?s for the first time in 14 years in 2006 as Asia?s fourth largest economy grows at a record pace.
S&P had increased the rating by one level to BBB- from BB+. Moody?s Investors Service raised its rating to investment grade in January 2004, followed by Fitch Ratings in August 2006.