Fitch retains India’s rating at BBB-

Fitch has kept India’s rating unchanged with a stable outlook, saying the rating balances a strong medium term growth outlook and favourable external balances with weak fiscal finances and some lagging structural factors, including governance standards and a still-difficult, but improving, business environment.

The agency affirmed India’s rating at BBB-, which is at the junk bond or lowest investment grade with a stable outlook. Last year Moody’s Investors Service had upgraded India’s sovereign rating after a gap of nearly 14 years, while Standard & Poor’s retained its BBB- rating with a stable outlook. A rating upgrade changes the profile of the country and makes it attractive to investors.

The stable outlook reflects Fitch’s assessment that upside and downside risks to ratings are broadly balanced. The main factors that, individually or collectively, could trigger positive rating action are: A reduction in general government debt over the medium term to a level closer to that of rated peers and higher sustained investment and growth rates, without the creation of macro imbalances, such as from successful structural reform implementation.

The government had pitched for a rating upgrade, citing its reform record as well as rebound in economic growth but the agency has preferred to remain cautious.

Fitch said a favourable economic growth outlook continues to support India’s credit profile and forecast growth to rebound to 7.3% in FY19 and 7.5% in FY20, as a temporary drag will fade from the withdrawal of large-denomination bank notes in November 2016 and the introduction of GST in July last year.

“The GST is likely to support growth in medium term once teething issues dissipate. India’s five-year average real GDP growth of 7.1% is the highest in APAC region and among ‘BBB’ range peers. Growth has the potential to remain high for a substantial period of time, as convergence with more developed economies can be expected,” the agency said.

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