India faces challenges on stable rating outlook: S&P report

Like many countries, India is facing some challenges on a few fronts, and the balance of risk factors for the sovereign credit rating may be shifting slightly toward the negative, said Standard & Poor's Ratings Services today in a report titled "Several Factors Could Weigh On India's Current Stable Sovereign Rating In 2012."

High inflation, a weak government fiscal position, and slower economic growth have hurt investor confidence in the rupee, triggered a capital outflow, and weighed on the stable sovereign outlook on India in 2012, said the report.

"Uncertainty in global financial markets and European sovereign debt problems could add to the pressures on India," said Standard & Poor's credit analyst Takahira Ogawa.

India (unsolicited rating BBB-/Stable/A-3) has been grappling with a political gridlock and the government's ability to implement measures to improve economic growth and fiscal prudence will be vital to boosting confidence, Ogawa noted.

"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. "We have factored in inflation and political uncertainty, which may lead to higher government subsidies and stalled reform efforts."

Standard & Poor's doesn't expect to downgrade or revise the outlook on the long-term rating in the near future. However, the negative factors, combined with the government's weak policy formulation and implementation, may lead us to a tipping point, Ogawa said.