S&P threatens to cut ratings if credit woes continue

Excerpts from CNBC-TV18's exclusive interview with Takahira Ogawa:

Q: What exactly are your concerns and how close is the sovereign Indian rating to a downgrade?

A: Firstly, at this stage our positive and negative factors on the India credit rating is balanced. There is a growing concern on the fiscal position of the government. This is partially because of the global oil price and food price and so on. There are some issues relating to the government policies over the recommendation by the Sixth Pay Commission to increase the salaries of the bureaucrats.

Q: What will be the tipping point? You haven't yet downgraded the Indian rating to speculative. What could be the exact factor or number? Will you look at a fiscal deficit above 3%, will you look at an extra government borrowing outside the scheduled borrowing programme or will you look at a current account deficit number?

A: We will be looking at all the numbers that could affect the sovereign credit rating before talking about downgrades. At this stage, we still have a stable outlook. If there is something wrong in the next few months or next year, we might change our outlook.

It depends on the pace of deterioration of the fiscal position and it depends on whether the worsening fiscal position is a temporary issue or a long lasting one. All those considerations are necessary. So based on that we are monitoring the situation.

Earlier this year we expected the general government fiscal deficit to be 6.5% of GDP. If there was a measure that has been announced it is implemented. If most of the cost is borne by the issuance of the government bonds then the size of the fiscal deficit could go up higher than 9%.

Even if it were temporary then the situation might be able to be contained. But if this is a structural issue and lasts long, then we might have to see how the government implements its fiscal consolidation measures.