Rating agency Standard and Poor’s today said high inflation, a weak government fiscal position, and slower economic growth will negatively impact India’s sovereign rating.
Many developing countries, including India have managed to maintain relative stability and continued growth, despite sovereign debt concerns and weak economic performance in Europe and US. However, these developing countries--India among them-- they do face challenges of their own.
S&P’s unsolicited rating for India is “BBB-/Stable/A-3”
Ratings Services in a statement said the balance of risk factors (for India’s sovereign rating) may be shifting slightly toward the negative for reasons including: high inflation, a weak government fiscal position, and slower economic growth.
They have dented investor confidence in the Indian rupee and triggered capital outflow, resulting in depreciation against major currencies. The uncertainty in global financial markets and European sovereign debt problems could add to the pressures India is feeling.
S&P’s credit analyst Takahira Ogawa said India has been grappling with a political gridlock. The government's ability to implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence.
"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," he said.
The agency has factored in inflation and political uncertainty, which may lead to higher government subsidies and stalled reform efforts.