BackFitch maintains stable sovereign ratings outlook for India
The govt's broad-based structural reform agenda has brought dynamism back to the economy after a couple of years of limited progress, the ratings agency said
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New Delhi: Fitch Ratings Inc. has maintained its stable outlook for India, on a day Moody’s Investor Service raised the country’s rating upgrade outlook to positive from stable.
The government’s broad-based structural reform agenda has brought dynamism back to the Indian economy after a couple of years of limited progress on the structural front, Fitch said in its report on Thursday, adding that the policy initiatives will bring the investment climate in India closer in line with its peers.
Moody’s also gave a much-needed booster to the Narendra Modi government by revising India’s sovereign credit rating outlook to positive from stable.
The outlook upgrade by Moody’s is a bet that the policy measures by the government will allow India’s growth to outperform that of its peers in the medium term and improve its economic, infrastructure and institutional profile.
The implementation of the government’s structural reform agenda and structurally lower inflation would improve the sovereign credit profile, as both would improve the investment climate and benefit real gross domestic product growth, Fitch said.
However, India’s sovereign ratings are constrained by limited improvement in its fiscal position, which is a longstanding key weakness, it said.
The upside and downside risks to the rating are balanced, the rater said. India is rated BBB minus by Fitch, just a notch above junk status.
The main factors that could lead to positive rating action include fiscal consolidation that would reduce the government debt faster than expected and an improved business environment resulting from implemented reforms and structurally lower inflation levels, which would support higher investment and real gross domestic product growth.
However, a deviation from fiscal consolidation, the return of persistently high inflation and a widening current account deficit could result in a negative rating action, Fitch said in its report.
The implementation of the steps taken by the National Democratic Alliance government after it came to power will be key for higher economic growth, it said.
“India’s relatively weak business environment and standards of governance, as well as widespread infrastructure bottlenecks, will not change overnight, but there is ample room for improvement," the report said. “Translation of the reforms into higher real GDP growth depends on the actual implementation."
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