Standard & Poor’s (S&P) has said it might cut India’s sovereign rating if the economy did not recover.

The rating agency has a BBB- rating with a stable outlook for India.

Earlier this month, economic affairs secretary Atanu Chakraborty said in a tweet that S&P had reaffirmed its sovereign rating for the country. However, in the context of the country’s economic slowdown and financial sector stress, the rating agency recently replied to some frequently asked questions on the credit rating which explained the risk factors in the sovereign rating profile.

It said India’s long-term economic outperformance remained intact despite the agency’s relatively weaker growth expectations for this financial year. S&P is forecasting real GDP growth to decelerate to 5.1 per cent.

However, S&P added that this assessment incorporates its expectations for the economy to gradually recover over the next few years, with correspondingly higher growth.

“If this recovery does not materialise, and it becomes clear that India’s structural growth has significantly deteriorated, we could lower the rating,” S&P Global Ratings credit analyst Andrew Wood said.

According to the agency, India’s fiscal metrics, including its fiscal deficit and annual change in the net general government indebtedness, are weak and these weaknesses have been incorporated in its BBB-rating for many years, with modest expectations for fiscal consolidation.

“This year looks to be a particularly difficult one for the general government’s fiscal position in view of a sluggish revenue performance owing to the economic slowdown as well as the expected impact of the powerful corporate tax cuts announced in September,” S&P observed.

It pointed out that government measures that encourage private investment, which includes the recent corporate tax cuts, will help to address structural weaknesses and that over the long term, India’s ability to return to sustained high GDP growth depends on structural reforms.

S&P’s observations come after Moody’s had cut the country’s rating outlook to negative from stable last month. Moody’s cited increasing risks that the economic growth will remain lower as the principal reason behind the move and added that the government’s policies have not been effective enough to address the economic weakness.