New Delhi: Even as it affirmed the country's credit rating at BBB-/A-3, global rating agency Standard & Poor's on Thursday warned of a likely downgrade in 2014 if the new government fails to reverse India's low growth.
"We have noted a marked slowdown in India's real growth. This complicates the government's debt dynamics and ability to implement reforms," S&P said. "We will review India's rating after the next general election," S&P said.
"The outlook remains negative, indicating that we may lower the rating to speculative grade next year if the government that takes office after the general election does not appear capable of reversing India's low economic growth," the agency added.
The current investment-grade ratings are supported by institutional strengths and foreign exchange reserves, the agency said.
Last week, Finance Minister P Chidambaram cautioned against 'excessive exuberance' while at the same time pointing to the good monsoon, rising exports, strong core sector growth and a lower-than-expected current account deficit as good auguries for an economic revival.
"Steps taken are beginning to yield results," Chidambaram said in a briefing, reeling out data that indicates a turnaround in the economy.
The core sector grew 8% in September on a higher base of 8.3% in same month last year while gross credit grew 16.8% in August and exports rose 11.5% in September.
These green shoots will give the government some respite from the criticism it has received for mismanaging the economy after growth slumped to a decade-low 5% last year and 4.4% in the first quarter of the current fiscal, especially with state polls around the corner and the general elections next year.
While most private estimates see economic growth in the current fiscal at around 4%, the Finance minister has a 5-5.5% range, based on a recovery in the second half, something that seems to be gradually taking shape.
The pickup in exports and contraction in gold imports have prompted Chidambaram to slash the current account deficit estimate for fiscal 2013-14 to $60 billion against $70 billion estimated in August.
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