After the government on November 10 opened up 15 sectors including real estate, defence, civil aviation and news broadcasting in a bid to push up reforms, Fitch Ratings has lauded the sweeping reforms and said that liberalisation of foreign direct investment (FDI) rules in 15 sectors is a significant structural macroeconomic reform that will support investment and real GDP growth over the long term.
The rating agency further said that “We forecast Indian real GDP growth to come in at 7.5 per cent this year and accelerate to 8.0 per cent in 2016 and 2017,” and added that implementation of these reforms and boosting investment is an important credit factor for India, both to bolster growth and to reduce external vulnerabilities.
Fitch also hailed the government's package to revive discoms, announced on November 5, which it said underscores the reform momentum. It added that the heavily indebted discoms of states that opt for the package will see 75 percent of their outstanding debt transferred to the states while the remaining 25 percent will be issued as state-guaranteed disco bonds. As per the rating agency, this could lead to higher general government debt of up to 2 percent of GDP, but this is not sufficiently significant to have an effect on India's ratings, especially with the potential positive longer-term effects of the reforms. The reforms, it said, create an incentive structure for state governments to reduce losses at discoms by requiring the state governments to assume a certain share of losses at these entities.
Fitch said the FDI and discom announcements highlight how the government can make reform progress using its regulatory and executive powers. Earlier, the government announced key changes to FDI regime, include raising the limit for FDI approvals from the Foreign Investment Promotion Board (FIPB) to Rs 5,000 crore from Rs 3,000 crore, increasing foreign-investor limits in several sectors including private banks, defence and non-news entertainment media as well as allowing property developers to sell completed projects to foreign investors without lock-in periods.
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