India faces one-in-three chance of rating downgrade in the next two years in case the government fails to push reforms in view of the political gridlock and general election in 2014, Standard & Poor's said today.

The problems being faced by the economy include soaring fiscal deficit and high inflation, S&P said while retaining India's rating at 'BBB-', lowest in the investment grade. Any further downgrade will push India's rating to the junk status, making it difficult and costlier for Indian entities to borrow funds overseas.

"The negative outlook signals at least a one-in-three likelihood of a downgrade within the next 24 months. A downgrade is likely if India's economic growth prospects dim, its external position deteriorates, its political climate worsens, or fiscal reforms slow," S&P said.

High fiscal deficit and a heavy debt burden would remain the most significant rating constraints, it said, adding that things could improve with government initiatives to reduce the deficit and improve investment climate.