News Desk: While India is boasting of its image as the fastest growing country, the cloud over its economy darkened when Standard & Poor cut its outlook on India's long-term debt to negative, warning of a possible credit downgrade.


The agency's move challenges the country's image and puts a pressure on the government to cut spending. It suggested taking steps to attract more foreign investment while the government is struggling to expedite economic growth and reduce inflation.


The S&P said that the modest progress on fiscal and overall economic reforms could be expected before the 2014 general elections in India.


S&P's credit analyst Takahira Ogawa said, "High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle --with the next elections to be held by May 2014 - and the current political gridlock".


The ruling coalition UPA government led by Prime Minister Manmohan Singh is facing severe criticism from its opposition for several scandals. Even the foreign investors have slammed the government for policy uncertainty and its move to amend the Income Tax Act from 1962.  


The government has failed to attract fresh foreign investment, increase productivity and curtail spending on welfare and subsidies due to political tussle.


The agency maintained India's credit rating at triple-B-minus, which is the lowest investment-grade rating. Moody's and Fitch, other major ratings firms, have pointed out India's lowest investment-grade ratings. However, they have not joined S&P in its negative outlook.


The analysis by S&P is a blow to India, which has been seen as an attractive destination for foreign investors. When European countries struggled with ratings downgrades, India with its strong growth and population should put some impact on the developing and developed nations.  India's economic growth has declined to 6.9% in the year ended on March 31.


However, Union Finance Minister Pranab Mukherjee said that the S&P's move to lower the outlook on India’s rating is a timely warning. He assured that the economic reforms would be done in the fiscal deficit at 5.1 per cent of the gross domestic product (GDP) for 2012-13, as projected in the Budget.

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