S&P downgrades India's sovereign currency rating

By Our Special Correspondent

NEW DELHI, AUG. 7. Reflecting the sharp slowdown in the Indian economy, the international rating agency, Standard and Poor's (S&P) today downgraded India's sovereign credit rating outlook for both local and foreign currency, to ``negative'' from ``stable'' in view of rising fiscal deficit and domestic public debt. The agency also lowered long term local currency rating to `BBB minus' from `BBB'.

The local currency rating downgrade reflects unchecked budget deficits and rising domestic indebtedness. India's budget deficit, the Centre's and States taken together, is likely to exceed 10 per cent of gross domestic product (GDP) in current financial year, an S&P's release said.

The agency said the total public debt could approach 70 per cent of the GDP or more than 400 per cent of revenues, which is higher than that of most similarly rated countries.

The rating agency reaffirmed the foreign currency sovereign rating to `B' but the outlook has become ``negative'' from ``stable'' earlier.

The deceleration in GDP growth to about five per cent last fiscal from nearly seven per cent in the late 1990s reflects structural and cyclical factors, the agency said in a reference to the slow down in reforms in the country.

``The cost of tardy and shallow reforms is seen in India's poor physical infrastructure and chronic power shortages constrain growth and are unlikely to be alleviated without a reversal of populists policies, such as those providing free electricity. Falling growth prospects, in turn, foreshadow weaker tax revenue and heightened fiscal challenges,'' the agency said.

The downgrade of the currency was also on the expectation that public finance might worsen further in the years to come. ``The country's political leadership, cutting across all parties, remains reluctant to forgo patronage opportunities that arise from the bloated public sector, undermining the credibility of India's beleaguered privatisation programme,'' the release said pointing out that in only two out of a total of 240 public sector units the Government has sold its majority stake.

S&P's has also warned that further deterioration of India's public finances could trigger downgrades of its foreign and local currency sovereign ratings.

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Section  : Business
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