India's downgrade likely if government fails to correct fiscal situation: Standard & Poor's

NEW DELHI: India's sovereign credit rating can be downgraded to junk status if the government fails to address the fiscal imbalances in the economy, Standard & Poor's said.

Speaking to ET Now, Takahira Ogawa, director of sovereign ratings at S&P, said expectations from the government were low.

"India's fiscal and monetary policy needs coordination," he said.

Ogawa added that high interst rates, deficit and inflation were impacting the country's growth, saying that he did not expect Q2 GDP growth to rebound.

There is a need to see some measures from the government to address the subsidy issue, he said, but added that subsidy reforms will be difficult in FY-13 owing to the coming elections.

Earlier in April this year, S&P cut India's outlook to negative from stable, citing slow progress on its fiscal situation, as well as deteriorating economic indicators. Stating that India's investment and economic growth have slowed, Standard & Poor's (S&P) revised its outlook for the Indian economy to negative and gave it a rating of BBB(-) from stable.

The lowered outlook jeopardises India's long-term rating of BBB-, which is the lowest investment grade rating.

Later in June, S&P said the country could become the first among the BRIC economies to lose its investment-grade status.

However, hitting out at the rating agency, India had said that its methodologies were not transparent and the country's economy was better off than the peers it was bracketed with.