ARC ratings assign BBB+ sovereign rating to India

ARC ratings, the newly formed global credit rating agency, have assigned India a BBB+ sovereign rating  and a “stable” outlook.

This is two notches higher than other three rating agencies – Moody’s, Fitch and S&P – which have accorded India a BBB- rating, with some having a positive outlook.

Along with the sovereign rating – also known as the long-term foreign currency issuer rating - of BBB+, the agency also assigned a long-term local currency issuer rating of A- to India. This is the agency’s first sovereign rating since  it was formed in 2013.  

According to the agency, the key drivers for this rating are the country’s low external vulnerability, growth dynamism and its large government debt and deficits. 

“We expect India"s growth to accelerate from an annual average of 4.8% in 2012-14 to 6.5% in 2015-17,” said the statement from ARC ratings.

The statement also said that this growth is driven by recovery in corporate investment, robust domestic consumption and the new government’s aggressive growth-enhancing structural reform program.

It also said that the key debt ratios are on a downward trajectory and is supported by a favourable currency composition (94% local currency), maturity structure (average maturity over 9 years), and ownership base (limited foreign holdings of local currency debt) relative to BBB rated emerging market peers. 

“Prospects for fiscal consolidation are limited, although we expect budget deficits to improve marginally to 6.5% of GDP in 2015-17, down from an average of 7.6% in 2010-14,” said the statement.

The corporate sector has high external leverage and banks are encumbered by an overhang of bad assets which has impaired credit growth. “We expect domestic credit conditions to ease gradually in 2015/16 but to lag growth,” said the agency which is also in partnership with India's CARE ratings.

“India’s current account deficit improved from 4.7% of GDP in 2012 to 2% in 2014, limiting the economy’s exposure to external financing conditions, and expected to continue to tighten in 2015/16, thanks, in part, to low oil prices,” it added.