Statement — Global credit rating agency Standard & Poor’s (S&P) downgraded India’s local-currency rating to junk (speculative) grade, while maintaining the foreign-currency rating at the same speculative grade as before.\nQuestion — Which conclusion necessarily follows from this statement?

Introduction / Context:
The stem is purely informational: one rating action (local currency) was downgraded to junk; the other (foreign currency) remained at an already-junk grade. We must test two conclusions about market impact and debt dynamics.

Given Data / Assumptions:

• S&P action: local currency rating cut to speculative grade.
• Foreign currency rating unchanged (still speculative).
• No data about markets’ actual reaction or India’s debt sustainability path.

Concept / Approach:
Logical questions require consequences that are guaranteed by the statement. Predictions such as “likely to demoralise markets” or “approaching a debt trap” add causal/evaluative layers absent from the stem.

Step-by-Step Solution:

Verification / Alternative check:
Consider a world where markets had already priced the risk; costs do not rise materially—still consistent with the stem. Consider another where fiscal/FX buffers are strong—no “debt trap” necessarily follows.

Why Other Options Are Wrong:
Any option selecting I or II affirms speculative narratives. “Either” is also unsupported.

Common Pitfalls:
Confusing rating signals with guaranteed macro outcomes.

Final Answer:
if neither I nor II follows, and