* Reform steps taken need to be implemented in full: S&P
* Says India needs to assure reforms are not one-off
* Says doesn't have high hopes for reforms in Feb budget
* India has averted rating downgrade threat: Reuters Poll
(Adds Reuters poll, details)
By Rajesh Kumar Singh
NEW DELHI, Jan 31 (Reuters) - The possibility of India
losing its investment-grade credit rating has receded somewhat
as a result of economic reforms undertaken by the government
since last September, an analyst with rating agency Standard &
Poor's told Reuters on Thursday.
"It is still at least a one in a three chance that we could
downgrade. But the likelihood of it is less than when we first
indicated the negative outlook last year," Tan Kim Eng said in a
telephone interview from Singapore.
His comments reflect a softening of the stand by the rating
agency just a few weeks after it reiterated a warning in
December about cutting India's rating to junk, citing a wide
fiscal deficit and a heavy debt burden.
India has a BBB- rating from S&P, the lowest investment
grade among the BRIC group of large emerging economies and one
notch above "junk" status.
The threat of a rating downgrade along with electoral
challenges posed by the worst economic slowdown in a decade has
made Prime Minister Manmohan Singh's government rediscover an
appetite for politically unpalatable but vital reforms.
It has opened the retail and aviation sectors to more
foreign investment, hiked railway passenger fares, cut
budget-busting fuel subsidies and slapped higher duties on gold
imports that have widened its current account deficit.
"We had no indication that they would be rolled out. So, to
some extent, it is a positive surprise," Tan said.
"Now, perhaps there are some indications that these reforms
could bring India's structural growth back up again."
Economists polled by Reuters earlier this week forecast that
the measures taken by New Delhi since late last year would be
enough to stave off downgrade threats issued by both S&P and its
rival Fitch last year.
A majority of economists polled, 14 of 23, said steps taken
thus far were enough to convince the rating agencies, even
though the economists expected the government to miss its fiscal
deficit target for the year. For full poll data click on
India's economic growth, which was close to hitting
double-digits before the global financial crisis in 2008, has
been stuck below 6 percent for the past three quarters. In the
fiscal year ending March 2013, the economy is expected to expand
by about 5.5 percent, the worst pace since 2002/03.
Growing economic pains are making it tougher for Prime
Minister Singh to fund flagship welfare programmes ahead of a
national election due by mid-2014.
To revive investor sentiment, Finance Minister P.
Chidambaram has delayed until April 2016 controversial tax
changes meant to combat evasion, after the new rules slowed
capital inflows. He has put welfare, defence and road projects
on the chopping block to hit a tough fiscal deficit target of
5.3 percent of GDP by March.
In an unusual move, he held roadshows in Asia and Europe
this month to convince investors about India's commitment to
"The key thing is that investors have to be reassured about
is that this (the reform push) is not a one-off thing, as in
they are doing all this at this moment because things have
turned negative and once things stabilise that's the end of all
new efforts," Tan said.
"While we don't see an urgent need to downgrade the rating,
we also are not yet comfortable enough to think that the rating
outlook should revert to stable."
With national elections barely 15 months away, investors are
worried the government could abandon its reform drive and unveil
populist measures in the federal budget in February.
Chidambaram has promised to present a growth friendly budget
on Feb. But Tan said he was not expecting big-bang reforms in
"At the end of the day, our expectation from the next budget
is that there will be no major structural reforms included.
Because at the end of the day, this is an election year budget."
(Additional reporting by Deepti Govind in BANGALORE; Polling by
Ashrith Rao Doddi; Editing by Ross Colvin & Kim Coghill)