India, one of the world's fastest-growing emerging market economies, had its local-currency BBB- debt rating outlook lowered by Standard & Poor's Wednesday to negative from stable and warned that a surging budget deficit could push it into junk status.
India's fiscal deficit hit 5.9 percent of GDP in the financial year ending in March, one of the largest in the emerging world, and sits well past the government's preferred 4.9 percent target.
"The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting," said S&P analyst Takahira Ogawa. "We are revising the outlook on the long-term ratings on India to negative to reflect at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow."
India's BBB- rating is now on the lowest rung of the investment grade ladder. The negative outlook on the rating suggests there is a one in three chance that S&P will cut it further in the near-term. Moody's Investors Service rates the $1.8tn economy, the ninth-largest in the world, also at its lowest investment grade level of Baa3. Fitch assess it at BBB-
India's benchmark 10-year bond yields rose 4 basis points to trade at 8.63 percent following the S&P announcement while the country's currency, the Rupee, slipped to 52.64 against the US dollar.