Indias fiscal position key constraint to sovereign rating

Prime Minister Modi, who has been pitching India as a favourable investment destination globally, will not be happy reading this.

Fitch Ratings has kept India’s sovereign rating unchanged at “BBB-” – the lowest investment grade – and affirmed a stable outlook, saying that the growth risks are balanced.

“The government could also choose to amend its medium-term targets in the next budget and further delay achieving a deficit of 3.0 per cent of GDP, now targeted for FY18”, it said. The agency has a BBB (minus) rating on India, which is a notch above the junk bond status.

Complimenting the government for steadily rolling out an ambitious structural reform agenda, the rating agency said translating these reforms into improved indicators and higher real GDP growth would depend on the actual implementation.

Fitch noted that it was hard for the government to garner the required support in the Rajya Sabha for some big-ticket reforms, including the goods and services tax, but those reforms that only required executive approval continued to be implemented and legislative reforms could still be pursued at the state level.

“Most operators are well positioned to mitigate the suppressed free-to-air (FTA) TV’s advertising demand in 2016 given their diversified cash flow sources and solid balance sheets”, said Alvin Lim, director at Fitch.

Fitch said real growth has been relatively resilient to lower oil prices, with forecasts of 3.3 percent in 2015 and 3 percent in 2016 and 2017, compared to the 4.5 percent growth seen in 2014.

Fitch today said a structural reduction in the consumer price inflation level, likely supported by the monetary policy framework changes in February 2015, strengthens India’s sovereign credit profile.

Furthermore, the global ratings agency pointed out that India is not immune to external shocks, but seems less vulnerable than many of its peers due to narrow current-account deficit and a build-up of reserves.

“In Fitch’s view, the above strengths should be able to hold them through their recent asset-quality issues but also make them well-poised for growth when the need arises”, the report added.