S&P revises India’s credit outlook

India faces the risk of having its credit rating lowered if its fiscal deficit deteriorates further, global rating agency Standard & Poor’s (S&P) said . S&P also downgraded India’s credit outlook to ‘negative’ from ‘stable’, citing various policies that had put pressure on the country’s finances. “The outlook revision reflects our view that India’s fiscal position has deteriorated to a level that is unsustainable in the medium term. The government has implemented various policies that have increased the stress on its fiscal position,’’ it said. S&P, however, retained India’s long-term credit rating at ‘BBB-’, which is the lowest investment grade. The rating agency said the government’s total deficit—including off-budget items like oil and fertilizer bonds—would increase to 11.4% for 2008-09 from 5.7% in 2007-08. Due to financial turmoil and the economic slowdown, the Centre’s fiscal deficit has ballooned to 6.1% from 2.5% projected in the 2008-09 budget. The main reason for this surge is the slippage in revenue collections on the one hand, and the expenditure on sops to stimulate the economy on the other. Tuesday’s statement by S&P came just before stand-in finance minister Pranab Mukherjee announced the third stimulus package, which will cost the exchequer an additional Rs 29,000 crore in 2009-10. This will push the fiscal deficit to over 6% of the GDP against the projection of 5.5% in the interim Budget for 2009-10. The government’s ballooning deficit figures are a source of worry, said S&P .Apart from its big-ticket concessions, the government also funds deficits like the underrecovery of the oil and fertilizer sectors through bonds. But these items are not included in the government’s fiscal deficit. The total deficit will further increase when the deficits of state governments are included. “We expect the deficit to remain high at 11.1% in fiscal 2009-10. The fiscal deficit could widen if the next government implements another stimulus package,’’ S&P’s credit analyst Takahira Ogawa said. With the government’s high debt burden and deficits, the statement said, the weak fiscal profile was the single largest negative factor for the sovereign ratings on India. However, the country’s external position was expected to remain resilient.