Standard & Poor's raises India's rating
According to the rating agency India's rating was enhanced as a result of its strong economic prospect.india Updated: Jan 30, 2007 14:47 IST
India's sovereign rating has been enhanced by Standard and Poor's (S&P) to investment grade to speculative category as a result of its strong economic prospect, the rating agency said on Tuesday.
"The upgrade on India's ratings to investment grade reflects its strong economic prospects, external balance sheet and its deep capital market, which supports a weak but improving fiscal position," the agency said.
Technically, the ratings stand improved to "BBB-/A-3" from "BB+/B".
India's economic prospects remain not just strong but are also rising gradually with the gross domestic product (GDP) trend growth likely to average more than 7.5 per cent in the medium term, said the agency.
"The service sector is dynamic, while the industrial sector is benefiting from gradual deregulation, trade liberalisation and modest improvements in infrastructure."
According to S&P, India's business environment will also improve in the coming years to sustain private investment and economic growth that is benefiting from higher consumption and demand from growing middle class and favourable demographics.
"Investment is also likely to engender job growth," it said, adding that reforms and steady monetary policy had sustained macroeconomic stability, leading to strong growth prospects and inflows of foreign capital and remittances.
"India's strong institutions have also provided relative stability in policy, politics and business environments against volatility usually associated with lower income levels."
On the flip side, S&P said the ratings on India remain constrained by the weak fiscal profile, especially its high government debt burden and deficit, which is still one of the worst among all rated sovereigns.
"The consolidated debt of India's central and state governments is projected at 85 per cent of GDP and interest payments are likely to consume about 30 per cent of general government revenue," the agency said.
"Inappropriate policy mix that increases the vulnerability of India's still-weak fiscal flexibility, and erodes external and growth strengths could lead to downward pressures on the rating," said the agency's credit analyst Ping Chew.