Mumbai : Standard & Poor’s Ratings Services said the negative outlook on India’s credit rating indicates that it may lower the sovereign rating in the next one year or so if the new government fails to reverse low economic growth.
S&P said it could revise the outlook to stable if the government restores some of the lost growth potential and consolidates its fiscal accounts. Currently, S&P has BBB- rating on India with negative outlook. Commenting on the Union Budget 2014-15 (Apr-Mar), S&P said the budget has no immediate impact on the sovereign credit rating.
The rating agency said commitment of the new government to maintain the trend of fiscal consolidation would benefit the sovereign’s credit fundamentals and the budget has opted for a cautious approach toward tackling economy’s structural weaknesses.
S&P said high fiscal deficit and resultant debt stock of about 70% of gross domestic product are two of the main constraints on the sovereign rating.
Finance Minister Arun Jaitley kept the fiscal deficit target, set by the previous government in the interim budget, unchanged at 4.1% of GDP. On the expenditure side, S&P said that it is unclear how the government will offset revenue loss from tax cuts and raising the income-tax exemption threshold.
S&P also said that it remains unclear whether the government would approve the goods and services tax by the end of current financial year. Jaitley said that the government hopes to bring final solution to GST issue in the current financial year.
Global rating agency Fitch also cautiously reacted cautiously to Budget proposals saying they are broadly credit positive but that implementation will be the key.
