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Global agency Standard & Poor's today threatened to downgrade India's rating to 'junk' status if it fails to pursue reforms, "disappointing" the government which retorted by saying the international investors hold a different view and there was nothing to be worried about.
While retaining India's sovereign rating at 'BBB-' with a negative outlook citing high fiscal and current account deficits, S&P said there is at least a one-in-three likelihood of a downgrade within the next 12 months.
"We may lower the rating if we conclude that slower government reforms than we currently expect would not lead economic growth to recover to levels experienced earlier this decade," the rating agency said in a statement.
While the Chief Economic Advisor to the Finance Ministry Raghuram Rajan described the rating action as "disappointing", Economic Affairs Secretary Arvind Mayaram said: "I think we are on right track and the reform process will continue and therefore I don't think there is anything to be worried about".
According to Rajan, "S&P has not seen it fit to improve its outlook for India, especially given that it acknowledges the important steps taken by the Indian Government in recent months.
"International institutional investors, who have invested over $17 billion into India so far this year, do seem to have a different view".
'BBB-' is the lowest investment grade and a downgrade would mean pushing the country's sovereign rating to junk status, making overseas borrowings by corporates costlier.
"We have indicated compared to one year ago, there (is) some easing of the pressure towards the downgrade of the rating," S&P credit analyst Takahira Ogawa said on a conference call.
