S&P to review its negative India rating after Budget

India’s sovereign credit rating is up for review in July, right after the Union budget is presented. Standard and Poor’s (S& P), the leading rating agency, had downgraded the outlook to ‘negative’ after the interim budget in February, due to the mounting fiscal deficit. Noting the changed political outlook, it now says it will review in July.

“We will review India’s sovereign rating...We will take note of the stability factor and if convinced by the government’s intention to control fiscal deficit and carry forward reforms, we may consider revising the outlook from negative to stable or neutral,” said sources in S & P.

If the outlook is revised from negative to neutral, it would be one of the fastest upward revisions by the agency. Soon after the downgrade in March, the Union government had written to S & P, contesting the rating. S&P had replied but this next review is understood to be in light of the government criticism. The trigger, however, is return of the UPA government, with more political strength.

S&P has maintained that India’s fiscal pressure is not only due to global cues and the stimulus packages announced in the wake of the global crisis. Farm loan waivers and implementation of pay panel recommendations were pressure points but not connected to global issues.

The combined fiscal deficit of Union and state governments for 2008-09 is understood to have crossed 12 per cent and some more states are expected to now implement the pay panel recommendations, which will worsen the situation. Sources say the government’s presentation will be crucial and the agency needs to be convinced of the official intentions.