)
S&P rates India at “BBB-minus”, one notch above junk, and cut its outlook to “negative” from “stable” last year, denoting a one-in-three possibility of a ratings downgrade.
“Economic support has weakened somewhat,” Kim Eng Tan, senior director of Asia-Pacific Sovereign Ratings said during a webcast about global ratings today.
India’s economic growth slowed dramatically to just 4.5 per cent in the October-December quarter of 2012 from more than nine per cent in early 2011. Tan added the revenue projections in the recent Budget for the next financial year could pose “significant challenges” for the government, although, he added, it was not “entirely out of reach”.
The budget for the fiscal year starting in April relies on a projected increase in revenue to fund a planned 16 percent rise in spending, while still intending to narrow the fiscal deficit to 4.8 percent of gross domestic product from 5.2 percent in the current year.
However, some analysts have expressed concerns the budget may be too optimistic, especially about tax revenues, given the slowdown in economic growth.
"The economic conditions will have to remain relatively strong" for the government to meet its projections and meet its fiscal deficit targets, Tan said on Friday.
The BSE Sensex was down 0.4 percent as of 2:08p.m., while the benchmark 10-year yield rose 2 basis points to trade flat on the day at 7.86 percent after the S&P comments.
