S&P may revise India ratings after polls

Nusa Dua (Indonesia): Standard & Poor’s may revise its credit rating on India as early as July after the next government outlines its fiscal policy, a senior analyst said on Tuesday.

The ratings agency also believes that recent signs of global economic recovery are prompted by government stimulus packages and that another downturn could still be possible, Elena Okorotchenko, S&P’s senior director for Asian sovereign ratings, said in an interview.

“Once the new (Indian) government is in place, we will be talking to them in order to understand their additional fiscal measures and how this would reflect on their budget performance and debt burden both in the short and medium-term,” she said.

“Depending on what we learn from this, we may be able to act either by affirming the rating and revising the outlook back to stable or downgrading.”

Okorotchenko spoke to Reuters on the sidelines of the Asia Development Bank’s annual meeting, held in Indonesia.

India’s month-long elections are due to finish by the middle of this month and the next government is expected to take office in June.

India’s deteriorating finances and swelling budget deficit have been a growing concern for investors, with the current government sharply increasing borrowing to pay for economic stimulus programmes.

Goldman Sachs expects the total Indian central and state deficit to have risen to 10.3% of gross domestic product during the financial year that ended in March 2009. That would be among the highest in the world, and an increase from 6.3% a year earlier.

S&P in February changed its outlook on India to negative from stable, indicating it was considering a cut in its rating from BBB-minus, the lowest investment grade rating.

A sovereign rating is an indicator of a country’s financial health and a downgrade could raise the interest rates paid by the government and companies when they borrow money.

It still may be too early to speak confidently about “green shoots”, or initial signs of an economic recovery, Okorotchenko said.

“It’s great to see these green shoots. But what we are observing now is the result of the unprecedented fiscal stimulus. The governments have indeed managed to alleviate some of the financial, economic and social pressures,” she said.

“But if the fiscal stimulus fails to re-ignite the economies -- namely, private consumption and investment -- then we may experience a double-dip recession scenario.”