 "S&P affirms India's sovereign ratings, says outlook is stable")
Global rating agency Standard and Poor's (S&P) has affirmed India"s sovereign rating for long term at 'BBB-' and short term at 'A-3'.
The outlook is stable.
The ratings on India reflect the country's sound external profile and improved monetary credibility, S&P said in a statement on Wednesday.
India's strong democratic institutions and a free press, which promote policy stability and predictability, also underpin the ratings.
These strengths are balanced against vulnerabilities stemming from the country's low per capita income and weak public finances, S&P said.
Indian economy is expected to clock growth of 7.9 per cent in 2016 and 8 per cent on average over 2016-2018.
India's governing parties have made progress in building consensus on a passage of laws to address long-standing impediments to the country's growth.
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These include comprehensive tax reforms through the likely introduction in the first half of 2017 of a goods and services tax (GST) to replace complex and distortive indirect taxes.
These measures, supported by India's well-entrenched democracy, will promote greater economic flexibility and help redress public finances over time, it said.
India's external position remains a credit strength. The country has a floating exchange rate and limited reliance on external savings to fund its growth.
While India experiences modest volatility in its terms of trade, the country will record a moderate current account deficit of 1.4 per cent in 2016 (2.1 per cent in 2015), and to average similar levels through 2018.
"Our forecasts are partly informed by our view of enhanced monetary policy credibility. In addition, we expect India to fund this deficit mostly with inflows without adding to debt", rating agency said.
India's external debt net of public and financial sector external assets will average only 5 per cent of current account receipts over 2016-2018.
Some decline is expected in India's external liquidity metrics in the next three years as its banks increasingly turn to external financing. India's gross external financing needs will remain below its current account receipts plus usable reserves through 2018.
The Reserve Bank of India's foreign reserves reached $369 billion as of September 2016. The authorities also maintain contingent financing facilities of $68 billion through bilateral swaps and contingency reserve arrangements.
A rating constraint is India's low GDP per capita, which we estimate at $1,700 in 2016. That said, India's growth outperforms its peers and is picking up modestly.
The domestic supply-side factors will increasingly bind economic performance, and the government has little ability to undertake counter-cyclical fiscal policy given its current debt burden. This debt load and India's overall weak public finances are additional rating constraints.
India has a long history of high general government fiscal deficits (averaging 8.8 per cent of GDP over the past 20 years and 7 per cent in the past five years). The deficits have not closed India's sizable shortfalls in basic services and infrastructure.
The country's fiscal challenges reflect both revenue under performance and constraints on expenditure. India's general government revenue, at an estimated 21% of 2016 GDP, is low among rated sovereigns.
Its expenditure constraints are mainly related to subsidies (about 2% of 2016 GDP) for food, energy, and fertilisers.