DBRS upgrades India's credit rating outlook to stable

International credit rating agency DBRS has upgraded India's long-term foreign and local currency debt rating outlook from negative to stable on account of fiscal consolidation and return to pre-crisis growth levels, backed by a robust policy framework.

"DBRS has changed the trend on India's long-term foreign and local currency debt ratings to stable from negative. The reasons for the change are progress in fiscal consolidation in the context of a strengthening policy framework, and a return to pre-crisis growth," the rating agency said in a statement.

DBRS has assigned a 'BBB(low)' on India's long-term foreign currency and local currency debts. A 'BBB' signifies medium risk.

"Estimates indicate that the general government deficit will decline from 8.3% of GDP in FY11 (8.7% of GDP excluding privatisation receipts) to 5.4% of GDP in FY15," DBRS said.

This effort, combined with reductions in subsides, changes in the tax code and privatisation of state assets, will reduce net general government debt estimated at about 75% of GDP in FY11, it added.

"Overall, India has adopted a more responsible medium-term fiscal policy and commitment to debt reduction, and this bodes well for the ratings," DBRS said.

The government, it added, "is addressing the country's infrastructure deficit by spending $514 billion, or 9% of GDP, on infrastructure between 2007-2012, and an additional $1 trillion from 2013-2017."

The government plans to spend $1 trillion on infrastructure during the 12th Plan period, of which half is expected to come from the private sector.

Complimenting India for reform initiatives, the DBRS said the country has freed petrol prices and is in the process of revamping the direct tax laws.

"A new direct tax code which could improve tax efficiency may be enacted in April 2012. Once introduced, a national identification card may in the coming years increase labour market formality, raise tax compliance and streamline subsidies and social security expenditures," it said.

DBRS further said the proposed Goods and Services Tax (GST), once implemented, would help in streamlining the indirect taxation regime in the country.

"India's fiscal and monetary policy response to the global credit crisis helped restore the economy to a path of higher growth. The economy has weathered the global credit crisis relatively well, and a strong private sector-led recovery has returned India's growth rates to pre-crisis levels," it said.