Amid fear of an economic slowdown in certain interest-rate sensitive sectors, DBRS, the Canada-based credit rating agency, has for the first time upgraded its outlook on India’s foreign and domestic credit ratings.
The upgrade by DBRS, which has been rating India’s debt since June 2007, is from negative to stable. It has cited better management of government finances, focus on infrastructure and tax reforms.
This comes within days of another rating agency, Fitch, affirming similar ratings. DBRS, however, retained the rating on India’s long-term foreign and local currency debt ratings at BBB (low), indicating medium risks.
Appreciating the government’s efforts, it says there is evidence of a stronger commitment to fiscal deficit reduction in the 2011-12 Budget.
“Estimates indicate the general government deficit will decline from 8.3 per cent of GDP in 2010-11 (8.7 per cent excluding privatisation receipts) to 5.4 per cent of GDP in 2014-15,” it said.
If creditors believe the rating, it would be easier for Indian firms to raise funds, both abroad and in the domestic markets.
Earlier this week, Fitch had affirmed the credit ratings issued in June 2010 at BBB-negative, with a stable outlook for long-term foreign and local currency.
It kept the short-term foreign currency rating at ‘F3’ and the country ceiling at BBB-negative, saying India’s robust growth prospects and solid external financial position underpin its BBB-negative sovereign status.
It had also said India had, since early 2010, shown renewed commitment to reducing both its fiscal deficit and debt.
DBRS said the government was addressing the country’s infrastructure deficit by spending $514 billion, nine per cent of GDP, on this head between 2007 and 2012, and an additional $1 trillion in 2013-2017, half of which may come from the private sector and public-private partnerships.
It has also highlighted the possibility of the new Direct Taxes Code contributing to improved tax efficiency and the national identification card increasing labour market formality, raising tax compliance and streamlining subsidies and social security expenditures.
The rating agency said India’s fiscal and monetary policy response to the global credit crisis helped restore the economy to a path of higher growth. It recognised India had adopted a more responsible medium-term fiscal policy and commitment to debt reduction, which bodes well for the ratings.
“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 added.
DBRS is one of the six international credit rating agencies which rate India’s sovereign debt. Other agencies are Standard and Poor’s, Moody’s Investor Services, Fitch Ratings, Japanese Credit Rating Agency and Rating and Investment Information.
