Fitch India rating


In this article first at a glance we will familiarize the readers with rating of Indian economy by recognized rating agencies of the world. Then we will discuss on various points with regards the rating.


Ø Sovereign ratings at investment grade.
Ø Long-term foreign and local currency BBB-(with stable outlook)
Ø Short-term foreign currency debt.
Ø Country ceiling BBB-

Moody’s Investors Service

Ø Long-term foreign currency debt Baa3 (the lowest investment grade, with a stable outlook)

Standard & Poor’s rating Services

Ø Long-term foreign currency debt BB+ (One notch below investment grade, with a positive outlook).

Fitch rating recently has upgraded India’s rating to investment grade. It also raised the country’s long term foreign and local currency issuer default rating (IDRs) to BBB from BB+ both with stable outlook. The short-term foreign currency IDR was also raised to F3 from B, and the country ceiling upgraded to BBB-(BBB minus) from BB+.

With the upgrade, Fitch rating of India is one-notch above the rating by S&P (BB+/positive) but in line with Moody’s (Baa3/stable). Fitch had upgraded India to BB+ in January 2004.

This upgrade reflects Fitch’s view that the fiscal consolidation is at last taking hold in India reinforced by the impressive growth story an the country’s strong external balance sheet. Public finances are still weak, but they are no longer a constraint on this rating.

Indian economists and market participants said this rating action was long overdue and the markets have already priced in this upgrade. The market has factored in this rating action and the borrowing rates are reflecting this market perception. The rating action would have no material impact. However, it would enable those foreign institutions whose investment decisions depend on sovereign ratings.

This time around the market has been ahead of the curve and the rating agencies have been laggards. Global as well as domestic markets have already acknowledged India’s strong fundamentals. The rating agency has said that for the first time since it started rating the country in March 2000, there appears to be a near universal commitment among the central government and the states to fiscal consolidation.

It has also complimented the government’s move to improve tax administration, implement value-added tax and efforts to widen the tax net. India is expected to encounter little difficulty in financing larger current account deficit of 2.4% of the gross domestic product (GDP) in 2006-07.

The gross external financing requirement is estimated at just 18% of reserves, well below the BBB median of 74%, underlining the fact that $155billion of foreign exchange reserves buy significant insurances against external shocks.

Though the rating agency is upbeat on the country’s public finances, the rating agency said growing signs that private sector borrowers re being ‘crowded out’ indicate that the public sector borrowing requirement is still incompatible with the country’s growth aspirations. Credit growth is outstripping deposit growth, raising fears of a credit crunch which, together with rising inflation expectations, have formed the backdrop to higher

Henceforth, fiscal consolidation will remain the main focus of this rating, particularly in the context of such strong growth, as will the need for a renewed push on structural adjustment.