The First BRIC Country Warned It May Be Downgraded to Junk Financial Status? India.

The BRIC countries, Brazil, Russia, India and China, have been the economic hope and growth story of the past decade.

But their paths appear to be diverging. Brazil and China, the two countries that have encouraged some foreign direct investment and competition (albeit with limits) appear to be flourishing. Russia and India, by contrast may be falling behind.

Russia, under Vladimir Putin and the oligarchs, is dependent on oil and gas exports. Thuggish treatment of European companies like BP has warned off many potential investors. That country's integration into the global economy has been limited.

India, similarly, seems determined to reflexively protect much of the Indian economy for its own people, even when they appear incapable of developing potentially lucrative and beneficial projects through Indian efforts alone.
The country's policy makers have repeatedly rejected the notion that in order to glean global benefits, they have to share opportunities. This has meant that non-Indian companies, from energy generation to retail, are repeatedly thwarted from entering many industries in a meaningful way.

As a result, India's economy has not lived up to expectations, either on its own terms or by comparison with others. And the global financial markets are beginning to act. Standard & Poor's recently warned that it may have to downgrade India and its securities as a result of budgetary woes, sluggish growth and a reputation for anti-global-business policies. S&P is admittedly not a credible arbiter of ethical behavior given its prime role in enabling the 2008 financial crisis. However, for lack of alternatives, it remains a useful source of economic ratings analysis.

That it felt compelled to issue this warning suggests that it sees little diminution of the policy predilections that have led India to this point. Unless that changes, the gulf between rich and poor in the country itself may become just as stark in terms of external comparisons. JL

Mamta Badkar reports in Business Insider:

India's slow GDP growth and its political hurdles to economic policy making are two key reasons that India risks losing its investment-grade rating, according to a new report from Standard & Poor's.

S&P revised India's rating outlook to 'negative' from 'stable' in April. S&P already had India at BBB-/A-3.

Here's the full release via S&P:

Slowing GDP growth and political roadblocks to economic policymaking are just some of the factors pushing up the risk that India (unsolicited BBB-/Negative/A-3) could lose its investment-grade rating. That's according to a recently released report by Standard & Poor's Ratings Services, titled "Will India Be The First BRIC Fallen Angel?"

The report states that the Indian government's reaction to potentially slower growth and greater vulnerability to economic shocks could largely determine whether the country can maintain an investment-grade rating or become the first "fallen angel" among the BRIC nations (which also comprise Brazil, Russia, and China). The 'BBB-' long-term sovereign credit rating on India is currently one notch above speculative grade.

"Setbacks or reversals in India's path toward a more liberal economy could hurt its long-term growth prospects and, therefore, its credit quality," said Standard & Poor's credit analyst Joydeep Mukerji.

Standard & Poor's revised the rating outlook to negative from stable in April 2012 because of India's lower GDP growth prospects and the risk that its external liquidity and fiscal flexibility may erode. The negative outlook also reflects the risk that Indian authorities may be unable to react to economic shocks quickly and decisively enough to maintain the country's current creditworthiness.

"The combination of a weakening political context for further reform, along with economic deceleration, raises the risk that the government may take modest steps backward away from economic liberalization in the event of unexpected economic shocks. Such potential backward steps could reverse India's liberalization of the external sector and the financial sector," said Mr. Mukherji.

The report examines the forecasts for economic growth, and the possible effects on business confidence and the government's commitment to economic reform.

The report also suggests that despite recent problems, the Indian economy remains in much better shape to withstand this period of heightened global uncertainty than it was in the early 1990s, when it suffered a balance-of-payments crisis.