Rating agency Fitch today affirmed India's short-term foreign currency rating at 'F3' and the country ceiling at 'BBB-' on prospects of robust economic growth.
“India's robust growth prospects and solid external financial position underpin its 'BBB-' sovereign status,” said Art Woo, director, Fitch’s Asia Sovereign Ratings group. The challenges of a large fiscal deficit and pressures of rising inflation weigh heavy on the country. Fitch said the government showed renewed commitment to reducing both its fiscal deficit and debt, after allowing the deficit to widen before general elections in 2009 and during the global financial crisis.
The Union government’s fiscal deficit target of 4.6 per cent of gross domestic product (GDP) for 2011-12 is unlikely to be met due to the rising cost of subsidies. However, the potential slippage is unlikely to be significant.
Fitch said the broader general government budget deficit (combined deficits of the central and state governments) should continue to improve, falling to eight per cent of GDP in 2011-12 from nine per cent in 2010-11. India’s ‘BBB-’ rating is also supported by solid external finances, highlighted by a modest external debt service ratio and a robust external liquidity ratio. The country’s foreign exchange reserves are also large, standing at $313.5 billion at the end of May.
India’s widening current account deficit, estimated at 2.6 per cent of GDP in 2010-11, is not a significant risk, owing to the country’s rate of economic development. The country’s sovereign ratings would benefit from structural fiscal reforms, leading to a quicker decline in fiscal deficit and general government debt ratios.
