International credit rating agency Fitch revised the credit outlook
of India to negative on 18 June 2012. The agency cited rampant
corruption and stalled reform existing in the country as the reason
behind the move to downgrade the country's credit rating. The rating
agency, however, maintained the India's sovereign rating at 'BBB-'.
Fitch also downgraded the credit outlook of seven PSUs namely NTPC,
SAIL, IOC, PFC, GAIL, REC and NHPC. The agency downgraded the credit
outlook after considering a broad range of factors, such as, macro
economic policy, economy, public finances. Negative credit rating means
that over the next 12-24 months there is a possibility that India's
rating could be downgraded.
The agency in its report opined that with the fragile state of
economy and a large subsidy bill India is likely to miss its fiscal
deficit target of 5.1 percent for 2012-13. It predicted India’s fiscal
deficit to be 5.6-5.9 percent of GDP. The agency also lowered the GDP
growth projection of India for fiscal year 2012-13 from 7.5 percent to
6.5 per cent.
The Union Finance Ministry, however, rejected the agency’s rating and
pointed out that foreign institutional investors (FII) have reposed
their faith in the Indian economy and have already invested a net 12.3
billion dollar in the first five months of the calendar year 2012
compared to 8.3 billion dollar in the full calendar year of 2011.
Another credit rating agency Standard & Poor's had also revised
the India’s credit outlook to negative in April 2012. S&P’s in its
most recent report on India’s credit outlook released on 12 June 2012
had warned that given its sluggish growth rate and stalled economic
policy reforms, India could be the first among the BRIC grouping
nations to lose investment-grade rating.
What the sovereign rating 'BBB-' means:
BBB- is the last rating in the ratings which falls under investment
grade. If India gets its credit outlook downgraded further, then it will
be rated at BB+. The BB+ rating considered highest speculative grade by
market participants. It is also the first rating at the junk level.
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