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NEW DELHI - Standard & Poor's on Wednesday downgraded India's credit outlook to negative as a weakening economy and big public deficit puts the country's prized investment grade rating at risk.
The agency maintained India's rating at BBB-, but warned it faces at least a one-in-three chance of losing its status if its financial situation deteriorates.
The "BBB-" is one notch above "junk," which carries a higher risk of default and would mean new Delhi would have to pay higher interest rates on its public borrowing.
"India's investment and economic growth have slowed and its current-account deficit has widened, resulting in a weaker medium-term credit outlook," S&P credit analyst Takahira Ogawa said.
Asia's third-largest economy is battling stubborn inflation, the widest budget deficit of all major emerging economies, a weak fiscal position and slower growth on the domestic front.
Added to that is uncertainty in global financial markets and Europe's long-running sovereign debt crisis.
"We are revising the outlook on the long-term ratings on India to negative," Ogawa added in a statement.
The move reflected "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," he said.
India's economic reform process has been paralysed by a string of political scandals that has beset Prime Minister Manmohan Singh's Congress-led government,
S&P in 2007 hiked India's credit rating to investment-grade, a move that paved the way for global funds to invest in government bonds and other debt in the country.
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