Fitch affirms India's sovereign rating at 'BBB-'

Fitch forecasts India's real GDP growth to accelerate to 7.7% in FY17

Global rating agency Fitch Ratings has affirmed India's long-term foreign- and local-currency rating at 'BBB-'. The Outlook on ratings is stable.

India's sovereign ratings balance a strong medium-term growth outlook and favourable external balances with a weak fiscal position and difficult business environment, Fitch said in a statement on Tuesday.

However, the business environment is likely to gradually improve with the implementation and continued broadening of the government's structural reform agenda.

India's positive economic growth outlook stands out among peers. Real Gross Domestic Product (GDP) growth averaged 6.9 per cent over the five years to End-March 2017 (FY17), considerably higher than the 'BBB' range median of 3.2 per cent.

Fitch forecasts India's real GDP growth to accelerate to 7.7 per cent in FY17 and FY18, from 7.1 per cent in FY16.

The agency expects structural reforms to increase growth. The higher real disposable income supported by the implementation of the 7th Pay Commission recommendations and outlook of a monsoon with average rainfall are also beneficial for the economy, Fitch said.

It, however, flagged concerns that have bearing on ratings. First, weak public finances continue to work as constraining. It is revealed in high general government debt burden of 67.9 per cent of GDP ('BBB' median: 40.9 per cent) and wide fiscal balance of -6.6 per cent of GDP ('BBB' median: -2.7 per cent). However, there are some early indications that fiscal policy might become more focused on bringing down debt.

Second, a significant contingent liability for the sovereign continues to emanate from public sector banks. The banking sector's non-performing loans (NPLs) problem is well recognised by authorities but continues to linger. NPLs are expected to rise to 9.7% of total loans by end-FY17, from 4.6% in FY15,

Third India's economy is less developed on a number of structural metrics than many of its peers. Average per capita GDP remains low, at $1,714, compared with the 'BBB' range median of $ 9,701. Governance standards also remain weak, Fitch added.