International ratings agency Fitch Ratings on Monday announced that India’s investment rating would remain at ‘BBB-’ -- the lowest investment grade -- with a stable outlook, saying that strong medium-term growth outlook and favourable external finances will balance out weak structural features, including its business environment.
“India’s sovereign ratings and a stable outlook balance a strong medium-term GDP growth outlook and favourable external finances, including a strong foreign reserves buffer, with a high government debt burden and weak structural features, including a difficult - but improving - business environment,” Fitch Ratings said in a statement.
BBB- is just one notch above ‘junk’ status.
“The stable outlook reflects Fitch’s view that upside and downside risks to the ratings are balanced,” it said.
The sovereign rating and outlook for a country are often referred to as key parameters by foreign investors and global bodies to gauge its investment climate.
Fitch forecast that India’s GDP growth will accelerate to 7.5% in the current fiscal year, which will increase to 8% in 2016-17 supported by the government’s beefed-up capex spending and gradual implementation of a broad-based structural reform agenda.
“India’s positive GDP growth outlook stands out globally. The RBI policy rate cuts of 1.25% in total in 2015 are also likely to contribute to higher GDP growth even though monetary transmission is impaired by relatively weak banking sector balance-sheets,” it added.
India’s economy expanded at 7.3% in the previous fiscal year. Of the 1.25% RBI rate cut, banks have so far passed on up to 0.60% to borrowers.
Fitch said the government continues to steadily roll out its ambitious structural reforms agenda, including recent new measures that may improve the business environment, including changes in the foreign direct investment regime.
Fitch also said a decline in government debt burden, improved business environment through reforms, higher growth, investments and controlled inflation would lead to more positive rating action.
However, a deviation from the fiscal consolidation path, deterioration in the banking sector’s asset quality, higher inflation and widening of current account deficit could lead to a negative rating action, the agency warned.