"The negative outlook signals at least a one-in-three likelihood of a downgrade within the next 24 months. A downgrade is likely if India's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," S&P said. High fiscal deficit and a heavy debt burden would remain the most significant rating constraints, it said, adding that things could improve with government initiatives to reduce the deficit and improve investment climate.
"Given the political cycle -- with the next elections to be held by May 2014 -- and the current political gridlock, we expect only modest progress in fiscal and public sector reforms. "Such reforms include reducing fuel and fertiliser subsidies, introducing a nationwide goods and services tax, and easing of restrictions on foreign ownership in various sectors such as banking, insurance, and retail," S&P said.
However, another rating agency Moody's showed optimism by stating that India's growth prospect should be better in 2013 following withdrawal of support to government by an 'obstinate coalition partner' (Trinamool Congress) and flurry of reforms initiated by new Finance Minister P Chidambaram.