Mumbai: Global rating agency Fitch has retained 'BBB-' sovereign ratings of the country with a "stable" outlook and said rating revision depends on the new government's willingness to make difficult choices.
"India may have cleared the ground for progress on credit-supportive reforms, but the government's willingness to make difficult choices remains to be tested," Fitch Ratings credit analysts Sagarika Chandra and Andrew Colquhoun said in a note that forms part of the sovereign ratings of all the 17 Fitch-rated sovereigns in the Asia-Pacific region.
Accordingly, the agency has retained a BBB- rating on the country and also retained its "stable" outlook.
Fitch is the only agency which has a "stable" outlook on the nation's credit rating, since Standard & Poor's and Moody's have a negative outlook on India.
It can be noted that on April 11, 2014, Fitch had affirmed its BBB- rating, reflecting the balance between high foreign-exchange reserves and real GDP growth, compared to its peers, as well as weak fiscal balances and low governance standards.
Explaining the rationale for not revising the rating, the agency said today, "In its first Budget, the new government has stuck to the previous government's deficit target of 4.1 per cent of GDP for FY15 and set out a consolidation path to 3 per cent of GDP by FY17. This would be constructive if achieved, while further revenue-strengthening or expenditure-saving measures seem needed to reach these targets".
It also noted that the economy lost much of its dynamism in recent years as a result of weak investment, but said it expected a gradual pick-up in investment since election-related uncertainty has disappeared.
On GDP growth this fiscal, the report retained what it had projected in April and said, "Fitch expects real GDP growth to pick up to 5.5 per cent in FY15 and 6.5 per cent in FY16 from 4.7 per cent in FY14".
It also said that the current account deficit was of concern to investors in the summer of 2013, but has narrowed due to policy rate hikes and measures such as curbing gold imports. High foreign reserves provide a strong buffer.
However, the report said that the pace of fiscal consolidation and structural reforms is yet to be seen and so is the investment and inflation environment.
It also flagged concerns on rising bad assets in the banking sector, which it says "form a downside risk to the overall recovery and the sovereign ratings".
On its outlook about the country's public finances, macroeconomic issues and external finances, the agency has a stable outlook but on "structural issues" it has a negative outlook.
