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Story of a credit downgrade

US-based rating agency Standard & Poor’s (S&P) on Wednesday lowered India’s credit outlook to negative as question marks loomed over fundamentals.

business Updated: Apr 26, 2012 01:38 IST
HT Bureau

US-based rating agency Standard & Poor’s (S&P) on Wednesday lowered India’s credit outlook to negative as question marks loomed over fundamentals.

The bare facts

S&P has maintained India’s sovereign rating at BBB- (which is just one notch above the junk grade that carries the highest default risk) but has revised its outlook, which indicates the mood to “negative” from “stable”

It warned that India faces at least a one-in-three chance of a ratings downgrade in next 2 years.

A downgrade would mean the Indian government would have to pay higher interest rates on its public borrowings.


5.3% - S&P’s forecast India's real per capita income growth in 2012-13

6% - India’s average real per capita income growth in the last five years

Rs. 5,13,590 crore Or 5.1% of GDP — India’s fiscal deficit, which reflects a high debt burden on the government.

Inside soverign rating

Agencies such as Dun & Bradstreet, Moody’s and S&P, and in India, CRISIL (a partner of S&P), CARE and ICRA calculate ratings.

There is no specific formula. Agencies use public information, historical trends and future outlook to determine ratings.

Rating scale is as follows, from excellent to poor or from AAA to D. Anything lower than a BBB- rating is considered risky.

Should I be worried?

If you have a regular day job you have little to worry about now. But a weakening economy hurts fresh investments and hurts job prospects.

what caused mood to dip

Widenring gap on the external account and a higher fiscal deficit that cuts government’s elbow room to borrow.

Stalled reforms, political gridlock over subsidies, delayed tax reforms.

Standstill on easing foreign investment in insurance, banking and retail sectors.



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