Fitch retains sovereign rating for India

‘BBB’ denotes a moderate default risk relative to other nations for investors.

However,it cautions that changes in circumstances or economic conditions are likely to affect the capacity for timely repayment than in the case of higher rated category.

“India’s robust growth prospects and solid external financial position underpin its ‘BBB-‘ sovereign status,” said Fitch Asia Sovereign Ratings Director Art Woo.

The foreign exchange reserves of the country stood at USD 313.5 billion at May-end.

Besides,Fitch said that the current account deficit estimated at 2.6 per cent of GDP in 2010-11 is not a significant risk in the current stage of economic development.

Indian economy witnessed a growth of 8.5 per cent during the last fiscal.

In addition,India’s authorities look to be tackling the challenges of a continuously large fiscal deficit and rising inflation pressure with greater vigour,he said.

Since the introduction of the 13th Finance Commission report in early 2010,the government has shown renewed commitment to reducing both its fiscal deficit and debt after allowing the deficit to widen before general elections in 2009 and during the global financial crisis,the rating agency noted.

Although the central government fiscal deficit target of 4.6 per cent of GDP for 2011-12 may not be met due to the rising cost of subsidies,the potential slippage is unlikely to be significant.

The new fiscal consolidation strategy is vital if the government want to ensure that the sovereign’s public debt dynamics stay on a more sustainable path and are brought into line with other ‘BBB’-range rated sovereigns,it said.

On the GDP growth,Fitch said,the economy is expected to expand at 7.7 per cent during the current fiscal.

Higher policy rates have begun to weigh on the economy,particularly fixed investment activity,it said.

The Reserve Bank of India has raised interest rates ten times since March 2010 to tame inflation.

Fitch projects GDP growth at 7.7 per cent for 2011-12 compared with an 8.5 per cent increase in the previous fiscal.

“Nevertheless,India’s medium-term economic growth prospects remain strong,as potential GDP growth remains greater than 8 per cent,well above the ‘BBB’-range median,” it said.