Global rating agency Standard & Poor's (S&P) today warned that failure of the new government to come out with a credible growth plan post general elections could result in ratings downgrade for India.
"Barring an unexpected deterioration of the fiscal or external accounts before the election, we expect to review the rating on India after the next general elections when the new government has announced its policy agenda," S&P said in a statement, retaining 'BBB-' with negative outlook.
'BBB-' is the lowest investment grade and a downgrade would mean pushing the country's sovereign rating to junk status, making overseas borrowings by corporates costlier. S&P had cut its outlook on India to 'negative' in April last year.
The agency also said that the rating could be upgraded if the new government takes steps towards pushing growth and reforms. The general elections to elect a new government are due no later than May 2014.
S&P said the negative outlook indicates that it may lower the rating to speculative grade next year if the government that takes office after the general election does not appear capable of reversing India's low economic growth.
"If we believe that the agenda can restore some of India's lost growth potential, consolidate its fiscal accounts, and permit the conduct of an effective monetary policy, we may revise the outlook to stable," it said.
The Indian economy grew at a decade low level of 5 per cent in 2012-13. In the first quarter of the current fiscal it grew at 4.4 per cent, lowest in four years.
S&P further said that "if we see continued policy drift, we may lower the rating within a year".
The rating action did not cheer the market with BSE Sensex falling for the third consecutive day to close 72.17 points down at 20,822.
Meanwhile, rupee weakened further by 0.34 per cent to 62.60 to a dollar towards the end of trading.
