Lower inflation numbers, reforms and lower subsidy on fuel have hardly appeased the rating agencies. On the contrary, they have issued additional warnings about an impending rating downgrade for India. One that will not just push India to the 'junk' status but also keep away foreign investors. Indian corporate hoping to raise cheaper funds abroad will also then have to shell out much more.

As per SEBI, Foreign institutional investors (FIIs) have poured in US$ 18.8 bn into Indian stocks and bonds so far this year. This is nearly 30% higher than last year. What is it then that the rating agencies fear but FIIs do not?

The problem lies in the government's attitude towards addressing India's deficit problems. The economy has been sporting uncomfortably wide fiscal and current account deficits for a while now. The December quarter current account deficit at 6 .7% of GDP was at record levels. Rating agencies suspect that with elections on the cards, the government will dole out sops that will make the deficits wider. Besides, the election spending will also take the government's focus away from reform measures.

Thus, the rating downgrade risk may not be turning away the FIIs yet. But as per an article in Wall Street Journal, the rating agencies believe that it is only a matter of time before the FIIs retreat.