Economy Aug 12, 2012
New Delhi: Fitch Ratings, which recently lowered India's credit outlook to negative, has said that possibility of downgrading the country's sovereign rating is more than 50 percent in the next 12-24 months.
"The negative outlook suggests that there is a more than likely chance of Fitch revising rating downwards from 'BBB-' to 'BB+' in the next 12 to 24 months.
"When we say more than likely chance, this essentially translates into more than 50 percent chance," said Art Woo, director in Fitch's APAC Sovereigns team.
The comments were made in reply to emailed queries on the possibility of Fitch revising India's credit rating.
Fitch had lowered India's credit outlook to negative from stable on 15 June 2012.
The downgrade of credit outlook indicated that the country's medium-to long-term growth potential could gradually deteriorate if further structural reforms are not hastened to create a more positive operational environment for business and private investments.
Downgrading sovereign rating could impact investor sentiments and could lead to higher borrowing costs.
"The Indian economy is facing a challenging environment as the macroeconomic picture has turned unfavourable as growth has experienced a sharp slowdown, while inflation pressures have remained persistent," Woo said.
Stating that investment climate in India appears to be facing structural challenges, the rating agency observed the government's recent decision to review tax proposals such as GAAR does not come as "too surprising".
"India appears to be facing structural challenges surrounding its investment climate. Therefore, the decision to review certain tax proposals should not be considered too surprising," Woo said on queries related to the proposal for new taxation regime, General Anti Avoidance Rules (GAAR).
Last month, Prime Minister Manmohan Singh set up a panel headed by ICRIER chief and taxation expert Parthasarathi Shome to bring "greater clarity" and prepare a roadmap for GAAR by 30 September for its implementation.
Later, the terms of reference of the panel was expanded by including issues relating to taxation of FIIs and portfolio investors.
Meanwhile, on 9 August, rating agency Mooody's had slashed economic growth projection to expand 5.5 percent this year amid turbulent global conditions, domestic policy mis-steps and poor monsoon.
In recent days, financial services firm Citi, CLSA and Crisil have slashed their growth forecast for Indian economy.
The Reserve Bank of India (RBI), in its quarterly policy review on July 31, had trimmed its growth forecast to 6.5 percent from the earlier 7 percent.
The government, in the 2012-13 Union budget, had projected an economic growth of 7.6 percent.
More From R Jagannathan.