S&P cuts India outlook to negative

Standard & Poor's cut its outlook on India's long-term sovereign credit rating to negative from stable on Tuesday, citing an "unsustainable" deterioration in the country's fiscal position.

 "The outlook revision reflects our view that India's fiscal position has deteriorated to a level that is unsustainable in the medium term," said S&P in the statement.

S&P will retain its BBB-minus long-term sovereign rating for India and its A-3 short-term rating.

S&P said it expects the general government deficit, which includes off-budget items such as oil and fertiliser bonds, to increase to 11.4 per cent in the fiscal year ending in March, up from 5.7 per cent in the previous fiscal year.

The ratings agency said it expects a fiscal deficit of 11.1 per cent in the fiscal year ended in March 2010.

S&P cited debt relief for farmers and the first pay hike for government employees in 11 years, along with broader factors such as the weakening global economy, as reasons for the worsening finances in the country.

The ratings agency called India's weak fiscal position "the single-largest negative factor for the sovereign ratings."

Fitch last week also called the country's fiscal position its main concern for India. It currently has BBB-minus ratings, with a negative outlook on the local currency rating and a stable outlook on the foreign currency.

Moody's has an equivalent Baa3 rating with a stable outlook.

 

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