Standard & Poor's has warned that India still faces the prospect of a credit rating downgrade in the next 2 years despite the recent economic reforms. In spite of these measures, the agency still expects the fiscal deficit to be higher than the government's figure of 6 % of GDP for the financial year ending in March.
S&P had downgraded India's rating outlook to negative from stable in April this year. Currently, India enjoys a rating of BBB-, one notch above junk grade, which is the lowest rating among the BRIC economies. A downgrade was likely in case of dim growth prospects, deterioration in external position, worsening of political climate or slowing of fiscal reforms, says the rating agency.
However, the outlook can be enhanced to stable, if the government moves further to reduce fiscal deficits, improve the investment climate and increase growth prospects.