Almost a year after downgrading India’s credit rating outlook to ‘negative’, global rating agency Fitch has again given it a ‘stable’ rating. This upward revision in the outlook is mainly because of a lower-than-estimated fiscal deficit and some reform initiatives by the Government. The current rating is just one level above ‘junk bond’ status.
The revision comes at a time when the rupee is at record lows and the stock market is skidding. At the same time, Fitch has affirmed India’s ‘BBB (negative)’ rating.
Reasons for change
The rating agency has listed various reasons for the revision in the outlook. Among them, the key one was the fiscal deficit being contained at 4.9 per cent in 2012-13 compared to 5.7 per cent in 2011-12.
Fitch also expects the Government to broadly meet its 2013-14 budget deficit target of 4.8 per cent. It feels the authorities have begun to address the structural factors that have weakened India’s investment climate and growth prospects.
The agency believes that establishment of a Cabinet Committee on Investment will help fast-track infrastructure-related projects. Similarly, easing FDI norms will help, it notes.
Last year, while revising the outlook downwards, Fitch had warned of a rating downgrade. Such a downgrade would have resulted in Indian companies having to borrow at very high rates abroad, and foreign investments taking a hit.
Finance Minister P. Chidambaram did not react to the latest move. However, he is expected to give his views and make some major announcements at a press conference on Thursday.
Inflation pressure has begun to show signs of easing in the wake of weaker economic conditions and a tighter monetary policy by the RBI. The recent weakening of the rupee may, however, complicate policy management and limit the scope for further cuts in policy rates, says the report.
Fitch expects 5.7 per cent and 6.5 per cent growth in 2013-14 and 2014-15, respectively.