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India's sovereign rating stable: S&P


India's sovereign rating stable: S&P
India has passed its financial health checkup as credit rating watchdog Standard and Poor's has affirmed that there is no immediate threat to India.

The recent downgrade of US debt has wreaked havoc around the world and global stock markets. The global investors and financial experts all over the world have kept their eyes open on S&P's actions.


"We do not see an immediate impact on India's sovereign rating (BBB-/Stable) resulting from the lowering of the US sovereign rating to AA+," S&P's director of Asian sovereign ratings Takahira Ogawa told PTI.

A credit rating is an opinion on the creditworthiness of governments based upon the history of borrowing and repayment which reflects the government's ability to meet its financial obligations.

Major concern for Indian government is the rising inflation. The oil prices have remained strong over the last couple of quarters and Indian government had to pass on the price increase to Indian consumers. This has resulted in more inflation worries as the prices of commodities and energy products have increased.

Referring to problems with regard to high inflation and the fiscal deficit in India, Ogawa said, "Inflation remains India's biggest challenge in the near-term, as high inflation could push up credit costs and dampen the country's economic growth trajectory."

On Inflation, Ogawa further said, "Potential longer-term consequences may point to negative factors."

The Reserve Bank of India (RBI) has raised the interest rates 11 consecutive times to combat inflation, which has lift up the borrowing cost for Indian companies. The consumption has been good over the first two quarters. However, companies are expecting the margins to remain under pressure in the coming quarters.


He further said that while tight policies could have a positive bearing on the country's rating, a deterioration in fiscal health and setbacks on the economic reforms front might result in a downgrade.

Referring to public finances, Ogawa said, "Ballooning fiscal deficits also constrain the sovereign ratings on India. Continuing its fiscal consolidation policies into fiscal 2012 will be a key challenge for the government."

He further said, India's sovereign rating could be raised if "the government continues to reduce the public sector's deficits materially.

Story first published: Tuesday, August 16, 2011, 11:08 [IST]
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