MUMBAI: India still faced a one-in-three chance of a credit rating downgrade over the next 24 months, Standard & Poor's said, although a series of reform steps launched in September had slightly improved the country's prospects.
S&P's credit rating for India is BBB-, one notch above junk grade and the lowest investment rating in the BRICS g rouping of big emerging economies. S&P had lowered India's rating outlook to negative from stable in April.
"A downgrade is likely if the country's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," the ratings agency said in a report dated Tuesday and released on Wednesday.
The spate of initiatives unveiled by India including opening up of the retail and aviation sectors to foreign investors and cutting back fuel subsidies is intended in part to stave off a downgrade, which would hurt investor sentiment and push up overseas borrowing costs for Indian companies.
India does not have any sovereign global bond issues.
S&P analyst Kim Eng Tan said the reform measures had helped in "slightly" revising S&P's view on India's rating.
"Right now we do see that government has taken some actions which we didn't expect initially. To some extent that has helped to revise slightly our views of credit downgrade," Tan told CNBC-TV18.
India's outlook can be revised back to stable, S&P said, if New Delhi moves forward with steps to reduce structural fiscal deficits, improve the investment climate, and increase growth prospects.
The report briefly rattled markets, with bond yields edging higher and the rupee falling before recovering to levels before the release. S&P later said the report is the regular Asia-Pacific sovereign report card and does not contain new information on India's rating.
Asia's third-largest economy is growing at its slowest pace in three years, and this week the International Monetary Fund joined the chorus of those slashing their growth forecasts for India, to 4.9 percent in 2012 from 6.1 percent previously.
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