Indian Economy: Growth -3

[Guest]

[url="http://finance.yahoo.com/news/p-cuts-india-outlook-negative-074839947.html"]S&P cuts India outlook; investment rating in peril[/url]

The negative outlook jeopardizes India's long-term rating of BBB-, the lowest investment grade rating, and sent Indian bonds, stocks and the rupee lower.



India has no sovereign global bond issues, but a downgrade would increase borrowing costs for local companies and make it harder to refinance debt, and may have a further chilling effect on foreign investor confidence in the country in general.



"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," S&P credit analyst Takahira Ogawa said in a note.



The high cost of oil along with soaring gold imports drove India's current account deficit to its widest in eight years in the 2011/12 fiscal year which ended in March, according to government forecasts, or 4 percent of gross domestic product (GDP), up from 2.6 percent in the previous fiscal year.



Meanwhile, India's fiscal deficit swelled to about 5.9 percent of GDP in the fiscal year that ended in March, far above the government's 4.6 percent target.

Many economists believe New Delhi will have a tough time hitting its target of cutting the deficit this fiscal year to 5.1 percent of GDP, given a hefty subsidy burden and a weakened government that has failed to push through significant reforms.