Mumbai, Dec. 11: Standard & Poor’s (S&P) today said India’s sovereign rating could come under threat if the general election due next year threw up a hung Parliament or the government was unable to push through reforms.
S&P now has a BBB- sovereign credit rating on India, which is the lowest investment grade and carries a negative outlook.
The Sensex reacted negatively to S&P’s observation to fall nearly 84 points to 21171.41. The comment comes just days after the elections in four states saw the BJP emerging as the largest party.
Observers said the BJP was unlikely to maintain its winning streak in other states; regional parties could garner more votes resulting in a hung Parliament.
Last month, S&P had indicated that India’s rating was unlikely to be downgraded till the performance of the next government.
S&P had said the negative outlook indicated that it might lower the rating to speculative grade if the new government was incapable of reversing the low economic growth.
“Barring an unexpected deterioration of the fiscal or external accounts before the election, we expect to review the rating after the general elections when the new government has announced its policy agenda,” it said.
“If we believe that the agenda can restore some of India’s lost growth potential, consolidate its fiscal accounts, and permit the conduct of an effective monetary policy, we may revise the outlook to stable. If we see continued policy drift, we may lower the rating within a year.”