Relying on the stupendous success of 3G & BWA auctions and country’s strong economic growth, Fitch Ratings raised the outlook on India’s long-term local currency Issuer Default Rating (IDR) from ‘negative’ to ‘stable’. On Monday, the rating agency issued a statement to this effect.
The statement issued by Fitch points to the possibility that the country’s strong growth prospects and successful telecom spectrum auctions will help in reining in the debt-to-GDP ratio of the country, thereby loosening the grip on the local currency ratings.
Andrew Colquhoun, Director, Asia-Pacific Sovereigns Group, Fitch said, “However, public finances remain a clear weakness, and downward pressure on the ratings could resume if India veers too far off the deficit reduction path as outlined by the 13th Finance Commission.”
Fitch has retained the ‘stable’ outlook on the foreign currency IDR. According to the latest ratings, India’s long-term local and foreign currency IDRs stand at ‘BBB-’, short-term local currency IDR at ‘BBB-’ and short-term foreign currency IDR at ‘F3’.
The rating agency revised its growth forecast for the country’s economy from 7 to 8.5%, taking into consideration the recent spurt in growth. The improved growth prospects, coupled with the additional revenue from the 3G and BWA spectrum auctions are expected to bring down government’s debt from 83% of GDP at the end of last fiscal to 80% of GDP by the end of the current fiscal, ending in March 2011.
Fitch upgrades had positive repercussions in the markets. While BSE Sensex gained 273.22 points (1.6%), NSE’s S&P CNX Nifty went up by 78.35 points (1.5%).
The Fitch release also issued a word of caution, “India’s track record on sticking with medium-term fiscal plans is not good, although the Congress-led Government has at least voiced its commitment to debt reduction. If the debt ratios resume rising, it could impact the ratings negatively.”
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