Outlook reflects trajectory of India's rating: S&P

Standard & Poor's has affirmed India BBB- sovereign rating. However, it has revised the outlook on long-term rating to negative from stable.

In an analyst conference call, Takahira Ogawa of Standard & Poor's says, today’s action is not change of our rating. It is only change of the outlook attached to the rating.

He further says, the outlook is indication of the trajectory of the rating. “It doesn’t mean that the rating is changed,” he asserts.

He says, “There are few issues which we thought that there is increase in chance for us to change the rating in 24 months time horizon. One is the deteriorating external position. The other thing is the diminishing growth prospects for the near future. Also, the progress on fiscal reforms still remain slow. That’s the reason we changed the outlook.” 

He further points out that India has very large current account deficit. “We expect last fiscal year’s, FY12, current account deficit would be around 3.7% of the gross domestic product (GDP). That has increased from 2.7% one year ago.” He expects the level of the current account deficit will remain at the level of last year.

Also read: No need for panic after S&P India downgrade, says FM

At this stage, Ogawa says, India’s BBB- sovereign rating have more than one in three chances to have a downgrade within 24 months period. “But it depends on the government policy or the future course of the macro economic condition and the external balance. So, depending on those developments we may not change the rating itself. Also the same thing can be said on the similarly rated sovereigns because it depends on the environment or the macro economy and the external position. But the important thing is the government policy and to what extent governments can adjust their policy, if there is unfavourable macro economic or fiscal conditions,” he elaborates.

For complete concall, watch the accompanying videos.