S&P warns it may lower India rating to junk status

NEW DELHI(AFP) - India faces at least "a one-in-three" chance of losing its prized sovereign grade rating, global ratings agency Standard and Poor's has warned, in another blow to the scandal-tainted Congress government.

The announcement late on Friday comes after finance ministry officials have been arguing for a ratings upgrade, saying the government has been taking strong steps to curb India's financial deficit and promote investment.

India's BBB-minus investment rating is already the lowest among its BRICS peers Brazil, Russia, China and South Africa, and cutting it to "junk status" would push up the country's hefty borrowing costs as it would signal higher risk.

"There is at least a one-in-three chance that we will lower the ratings in the next 12 months, " S&P said, adding that "risks to India's growth from stalled reforms in parliament still tilt the credit risks to the downside."

The warning from S&P, which cut its outlook on India's BBB-minus rating to negative from stable last year, came after parliament was forced to adjourn early this month amid opposition uproar over corruption scandals.

The shutdown stalled the economic reform drive by Mr Singh's minority government, which has been hobbled by a string of graft controversies with two cabinet ministers entangled in scandals quitting late last week.

The government has opened up the retail and aviation sectors to wider foreign investment and partly freed fuel prices. But it has been striving to pass other bills to open the the insurance and pension sectors to more overseas investment and streamline industrial land acquisition to spur economic growth.

The agency said it may also cut India's ratings if it concludes that Asia's third-largest economy will not revert to higher seven to eight per cent growth levels notched up earlier in this decade.

India's growth right was bumping along at 5.0 per cent for the last financial year to March 2013, the lowest level in a decade, but the government expects it to pick up to six percent this year and is targeting seven per cent in 2014.

Also despite government efforts to cut red tape in implementing long-delayed infrastructure and power projects, its "success in raising investment growth remains uncertain," credit analyst Takahira Ogawa said.