S&P warns rating downgrade, wants more govt action

Even after the government took several steps over the last one month to provide a thrust to the economy, the threat of a sovereign ratings downgrade looms large. Standard & Poor's on Wednesday said that there is a one in three chance of a downgrade within the next 24 months which led to a fall in the markets with the Sensex at the BSE slipping by 0.9 per cent to close at 18,631.

The report highlighted that uncertainty in domestic political environment and intensifying global economic uncertainty may impact the country.

However, the World Bank projected the Indian economy to grow by 6 per cent in 2012-13 in the same week when its sister organisation, the IMF projected a 4.9 per cent rate of growth for the economy.

The World Bank growth projection comes in its Indian Economic Update issued on Wednesday where it said the nations' economic growth has slowed to a pace not seen since the beginning of the 2000s.

But S&P's ratings evaluation is consistent with the narrative it put out in June this year. "India was the only Asia-Pacific sovereign to see a negative rating action during the period. The outlook was revised to negative from stable. In our view, there is a significant chance that this trend could eventually affect political, economic, fiscal or external factors to lower the credit rating on India," S&P said in a statement.

India currently has a BBB- rating.

In its report titled "Asia Pacific Sovereigns: A Bit Of Stability In The Sea Of Uncertainty" the rating agency said that a downgrade is likely if the economic growth weakens and the reforms are slow.

The World Bank said that the recently announced measures to reduce subsidies and boost FDI are important to lift sentiment, "but investors are waiting for signals on other issues". That includes reform of direct taxes, implementation of GST and passage of the land acquisition and mining bills.

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