Fitch upgrades India’s sovereign outlook to ‘stable’

Fitch Ratings has revised India’s sovereign credit outlook to ‘stable’ from ‘negative’ and affirmed the ‘BBB-’ rating assigned earlier.
Why this upgrade?
Fitch revised the outlook to stable after noticing the steps taken by the government to control the budget deficit, including the commitments made in the 2013-14 budget, as well as some, albeit limited, progress in addressing some of the structural hindrances to investment and economic growth. Although slow and modest, a recovery in the real GDP growth has been forecasted with real GDP expected to expand 5.7% and 6.5% in 2013-14 and 2014-15, respectively.
Key Strengths:

  • Fitch has pointed to India’s inherent economic strength despite declension in the Current Account Deficit (CAD), which in part has been due to a surge in gold imports.
  • India’s foreign debt is moderate and RBI’s international reserves, which stood at $288 billion which serve as shock absorber in case of any external impact.
  • India’s investment-grade ratings are supported by high domestic savings rates that limit the reliance on foreign savings for private investment and fiscal funding, as well as by a relative long maturity of government debt issued in its own currency.
  • Success in containing the upward pressure on the Central government budget deficit in the face of a weaker-than-expected economy.
  • Government has started to address structural factors that have dampened the investment climate and growth prospects, notably regulatory uncertainty, delays in approvals of investment projects and supply bottlenecks in the power and mining sectors.
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