India's credit profile faces scrutiny

Singapore, Jul 12 (UNI) India's credit profile has come under scrutiny by Standard&Poor's Ratings Services titled, "Will Ratings On India Withstand Triple Whammy Of Rising Inflation And Worsening Fiscal And Current Account Deficits?".

"India's credit profile has worsened in the past 12 months but we believe the upside and downside risks to its 'BBB', rating are currently balanced," Standard&Poor's credit analyst Takahira Ogawa said.

"This assumes, however, that the reasons for credit deterioration are temporary. If we conclude that they are longer lasting, India's credit ratings could be lowered again to speculative grade." The Congress-led United Progressive Alliance (UPA) government faces challenges such as rising fiscal deficits (from already high levels by international standards), rising inflation, and, to a lesser extent, widening current account deficits, the agency pointed out.

It also noted that the Left parties announced their withdrawal of support from the UPA, which could complicate the early implementation of fiscal-discipline measures.

"These risks, however, are still mitigated by India's deep domestic markets, which allow it to finance large fiscal deficits without recourse to external funds, and by its strong external liquidity," Mr Ogawa said.

"The coming weeks and months will be critical as national elections approach. Political compulsions may make it difficult for the government to take timely measures to staunch fiscal or monetary slippages. Failure to respond adequately to negative developments could point to a sustained deterioration in macroeconomic stability and thus increase the probability that the government's ratings could be lowered to speculative grade," he pointed out.

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