There is a "one in three" chance of a downgrade of India's sovereign rating to junk status in the next two years, global credit ratings agency Standard & Poor's said on Wednesday.
"The negative outlook signals at least a one-in-three likelihood of a downgrade of the sovereign rating on India within the next 24 months," S&P analysts Takahira Ogawa and Elena Okorochenko said in a note.
On the upside, especially given the slew of reform measures carried out by the government in the past three weeks, the outlook can be revised upwards to stable if the government succeeds in reducing fiscal deficit, improve the investment climate and revives growth, S&P said.
Factors forcing a downgrade would be a drop in growth prospects, deterioration on the external front, worsening of the political climate and slow movement on fiscal reforms.
In June, the agency revised its outlook on the present BBB- rating to negative, which is one notch above junk grade and the lowest investment rating in among the BRIC economies.
It estimates the fiscal deficit to shoot up to 6 per cent from the targeted 5.1 percent this fiscal, and growth to fall to 5.5 per cent compared to the government's revised projection of 6.5 per cent.
"Fiscal measures to lower deficits could include a more efficient use of fuel, fertiliser, and agricultural subsidies, or the implementation of a goods and service tax," it suggested.