India could become the first Bric country sporting a non-investment grade rating, international credit rating agency Standard & Poor's has warned. “Slowing GDP growth and political roadblocks to economic policy making could put India at a risk of losing its investment-grade rating which is just one notch above speculative grade and carries a negative outlook,“ said S&P primary credit analysts Takahira Ogawa and Joydeep Mukherji .Slower GDP growth prospects and the risk of erosion in external liquidity and fiscal flexibility are weighing on the country's outlook rating. The outlook denotes the possible direction of the movement of the rating. “The negative outlook also reflects the risk that Indian authorities may be unable to react to economic shocks quickly enough to maintain its current creditworthiness,“ said the analysts in the note. India's long-term sovereign rating at BBB is already at the lowest level in the investment grade category. While Russia and Brazil are one notch above India at BBB, China is several notches higher at AA (high safety category). Except India, all Bric members have a stable rating outlook as well.
India's rating outlook downgrade in April to negative reflects at least a one-in-three chance of a downgrade in next two years, if India's external position continues to deteriorate, its GDP growth prospects diminish, or if progress on fiscal reforms remains slow, the agency had said earlier.
“India is poorest sovereign (in terms of per capita GDP) to receive an investment grade rating. One of the key elements sustaining India's rating was India's ability to achieve comparatively high rates of economic growth,“ said Ogawa and Mukherji.
According to data from the planning commission, rapid growth contributed to a decline in poverty rate to 29.8 per cent in 2010 from 37.2 per cent in 2005, implying a drop of 40 million people in absolute number of country's poor as per capita income doubled. But recent statistics show that GDP growth slumped to 5.3 per cent for the quarter ending March 2012 compared with 9.2 per cent in the January-March 2011.
Several agencies have cut their forecast for economic growth this year. The UN forecasts India's economy to grow at 6.7 per cent. While brokerage JP Morgan forecasts a figure of six per cent, Morgan Stanley sees just 5.8 per cent growth.
Crisil, a subsidiary of S&P , forecasts a growth of 6.5 per cent in 2012-13.