NEW DELHI: Standard & Poor's, the global rating agency, has raised India's sovereign credit rating to `investment grade' in view of the country's strong economic fundamentals and depth in its capital market.

In an official statement on Tuesday, S&P said that India's ratings now stand upgraded to `BBB-/A-3' from `BB+/B', the highest in more than a decade. "The outlook on the ratings is stable," the agency said.

The upgrade to `investment grade', the rating agency said, reflected India's strong economic prospects, external balance sheet as also its deep capital market, which "supports a weak but improving fiscal position".

Reacting to the rating upgrade, Finance Minister P. Chidambaram said: "I am happy. It is an acknowledgement of India's improving macro-economic stability and strength." According to Ping Chew, S&P's credit analyst, consistent monetary and fiscal policy stances taken by the Indian Government have sustained macroeconomic stability and attracted foreign and non-resident Indian (NRI) capital. "India's economic prospects remain strong and are rising gradually, with GDP (gross domestic product) trend growth likely to average more than 7.5 per cent in the medium term," Mr Chew said.

Besides, with a strong external balance-sheet on account of accumulation of foreign exchange reserves and prudent debt management, India's reserves position provided a buffer from changes in external and domestic investor confidence, he said. Despite the current account deficits, these strengths, Mr Chew said, were likely to continue, mainly on the expectation of strong capital inflows and the latest upgrade also reflected an improving fiscal position. India, he said, had a well-functioning bond market, specially when compared with its rated peers and income group, providing long-term financing for government deficits.

In this regard, the rating agency noted that the Central Government's budget deficit for the current fiscal appeared to be on track to achieve the target of 3.8 per cent of the country's GDP on the strength of high revenue collections. Also, the secular decline in general deficits in the medium term was likely to continue on account of tax reforms and improved administration and implementation of fiscal responsibility laws across 23 out of 29 States, S&P said. On the negative side, however, were certain irritants. The India ratings, Mr Chew said, remained hamstrung by the country's weak fiscal profile, especially the government's high debt burden and deficit, which were still one of the worst among all rated sovereigns.

Looking ahead, Mr Chew said that further upgrades on rating would depend on sustained prudent fiscal policy leading to reduction in government debt and interest burden, along with further reforms that lift the country's growth prospects and income levels.

Printer friendly page  
Send this article to Friends by E-Mail