Belying expectations, global ratings agency Standard & Poor's on Friday reaffirmed its negative outlook on India and in fact warned it may even downgrade the country's sovereign rating to junk grade if the government failed to check the widening fiscal and current account deficits and kickstart reforms for growth.
The agency affirmed its 'BBB—' long-term and 'A—3' short-term unsolicited sovereign credit ratings on India.
'BBB—' is the lowest investment grade just above the junk status and a downgrade would make overseas borrowings costlier for Indian companies.
The negative outlook signals at least a one-in-three likelihood of a downgrade within the next 12 months.
"It is disappointing that S&P has not seen it fit to improve its outlook for India, especially given that it acknowledges the important steps taken by the Indian government in recent months," said Raghuram Rajan, chief economic adviser at the finance ministry but added a note of optimism, saying international institutional investors had invested over $ 17 billion into India so far this year.