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Fitch Ratings affirms India's rating at 'BBB-'

08 Dec 2015 Evaluate

Fitch Ratings, the global credit ratings agency has affirmed India's rating at 'BBB-' -- the lowest investment grade -- with a stable outlook, saying strong medium-term growth outlook and favourable external finances balance out weak structural features, including its business environment. The agency has affirmed India's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-'. The issue ratings on India's senior unsecured foreign- and local-currency bonds are also affirmed at 'BBB-'. The Outlooks on the Long-Term IDRs are Stable. The Country Ceiling is affirmed at 'BBB-' and the Short-Term Foreign-Currency IDR at 'F3'.

Fitch has further said that affirmation of India's sovereign ratings and Stable Outlook balances a strong medium-term GDP growth outlook and favourable external finances, including a strong foreign reserves buffer, with a high government debt burden and weak structural features, including a difficult - but improving - business environment.

Fitch forecast that India's GDP growth will accelerate to 7.5 per cent in the current fiscal and further to 8 per cent in 2016-17 supported by the government's beefed-up capex spending and gradual implementation of a broad-based structural reform agenda. It added that the Reserve Bank of India's (RBI) policy rate cuts of 125bp in total in 2015 are also likely to contribute to higher GDP growth, even though monetary transmission is impaired by relatively weak banking sector balance sheets.

It noted that India's relatively weak business environment and standards of governance are gradually improving as a result of the pursued reforms, but obstacles faced by investors, including infrastructure bottlenecks, have not been reduced overnight. It cautioned that loose macroeconomic policy settings that cause a return of persistently high inflation levels and a widening current account deficit, which would increase the risk of external funding stress. Fitch also warned that a deviation from the fiscal consolidation path, deterioration in the banking sector's asset quality, higher inflation and widening of current account deficit could lead to a negative rating action.


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