World foremost credit rating agency Standard & Poor’s (S&P) on Friday warned India to downgrade its current position from strong and stable to provisional grade, if the country fails to rein inflation and tame its fiscal and current account deficits.
This warning of S&P executed in a published article of S&P entitled “Will ratings on India withstand triple whammy?” Warning to India, S&P credit analyst Takahira Ogawa said that Congress led UPA government was facing major challenges like soaring inflation, rising fiscal deficits and current account deficit. ‘The withdrawal of Left support has made the early implementation of fiscal-discipline measures more complex,’ he cited.
Blaming the inflation, soaring international crude oil prices and government’s ambitious decisions that had enhanced the external expenditure up to great extent, S&P has stated that India had shown worse performance in the last 12 months.
However, it has also added that the upside and downside risks to its ‘BBB’ rating are currently balanced. ‘The current India outlook is stable, watching the fiscal state. The rating review will depend on the pace of fiscal deterioration.’ said S&P but also added that if the poor performance of government goes long lasting, India may loose the sovereign rating and this will enhance the overseas borrowing cost of domestic companies.
S&P has raised India’s tentative ‘BB+/Positive/B’ position to speculative ‘BBB-/Stable/A-3’ position on January 30, 2007 viewing its promptly but strong growth rate.
According to report, UPA government is not able to tame the rising inflation and at present it has reached on to the 13-Years high position, which is putting the pressure on country’s economical infrastructure, fiscal deficit and forex reserve.
The government’s decision to waive off farmer’s debt of worth Rs. 71,000-crore, the subsidies to oil companies of worth Rs. 94,600-crore in the form of oil bonds, the 10-27% reduction in the prices of complex fertilisers, and the recommendation of Sixth Pay Commission to hike the government’s employees’ salary up to 40% will put the pressure on the country’s fiscal position and government will have to do some extra ordinary efforts to sustain its GDP growth rate, as stated S&P.
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