After the recent debacle of US rating, when India’s fate was lurking in the shadow of uncertainty, Standard and Poor's report that said that there is no immediate threat to India’s sovereign debt rating of BBB came as a great succour even though loose fiscal policy and the govt's inability to carry forward economic reforms could have implications in the medium term.
"We do not see an immediate impact on India's sovereign rating (BBB-/Stable) resulting from the lowering of the US sovereign rating to AA+," Standard & Poor's sovereign analyst Takahira Ogawa said.
S&P recently lowered the sovereign rating of the US to AA+ from AAA. The ratings are opinions that reflect the ability and willingness of the rated entity to meet financial obligations.
The decision to lower the sovereign rating of the US had deleterious consequences for stock markets all over the world, including India.
Pointing to problems with regard to high inflation and the fiscal deficit in India, Ogawa said, "Potential longer-term consequences may point to negative factors."
He further said that while tight policies could have a positive bearing on the country's rating, deterioration in fiscal health and setbacks on the economic reforms front might result in a downgrade.
India has been careworn with the weight of inflation, which is nearing the double-digit mark.
Headline inflation stood at 9.44 percent in June, while food inflation was 9.90 percent for the week ended 30th July.
On the fiscal side, rising prices of crude oil and high food and fertiliser subsidies, coupled with the inability of the government to raise Rs 40,000 crore from the divestment of equity in public sector companies during 2010-11, could create problems.
Inflation, Ogawa said, "remains India's biggest challenge in the near-term, as high inflation could push up credit costs and dampen the country's economic growth trajectory."
Referring to public finances, Ogawa said, "Ballooning fiscal deficits also constrain the sovereign ratings on India. Continuing its fiscal consolidation policies into fiscal 2012 will be a key challenge for the government."