New Delhi: Endorsing India's efforts to tame fiscal deficit, Fitch Wednesday revised the country's sovereign credit rating outlook to stable from negative that helped halt rupee slide and brought cheer to the government battling slowdown.
The development came as a pleasant surprise and pushed up the value of the rupee, which had touched a low time low of 58.96 against dollar yesterday, to 57.79.
"The revision of the outlook to stable reflects the measures taken by the government to contain the budget deficit, including the commitments made in the FY'14 budget, as well as some, albeit limited, progress in addressing some of the structural impediments to investment and economic growth," Fitch said in a statement.
Revision by Fitch comes within weeks of global agency Standard and Poor's retaining the negative outlook on India.
Last year, both Fitch and S&P had threatened to downgrade India's rating to junk grade in absence of steps by government to contain deficits and promote investment.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said revision by Fitch reflects strengthening of basic fundamentals of economy.
"Basic fundamentals have improved and to that extend, the rating agency's shift in the outlook reflects that. I would like to believe that in the coming months you see a significant improvement in the performance and that should ultimately be reflected in the grading," he said.
Fitch further said it expects the economy to recover after real GDP grew just 5 percent in 2012-13 versus 6.2 percent in the year ago period.
"As a result, Fitch is forecasting only a modest recovery with real GDP expected to expand 5.7 percent and 6.5 percent in FY'14 and FY'15 respectively," Fitch said.
India's economic recovery, however, is likely to remain slow until a healthier investment climate is created, which helps lift potential growth again, it said.
Fitch further said India's economic recovery, however, is likely to remain slow until a healthier investment climate is created, which would help lift potential growth again, it said.
Fitch also affirmed its Long-Term Foreign- and Local- Currency Issuer Default Ratings (IDRs) at 'BBB-'.
"The agency has also affirmed the Country Ceiling at 'BBB-' and the Short-Term Foreign-Currency IDR at 'F3'," it said.
It said the outlook revision and the affirmation of India's investment-grade ratings reflect that the authorities were successful in containing the upward pressure on the central government's budget deficit in the face of a weaker-than-expected economy.
The fiscal deficit was 4.9 percent of GDP in 2012-13, compared with 5.7 percent in the previous year.
"The authorities have also begun to address structural factors that have weakened the investment climate and growth prospects, notably regulatory uncertainty, delays in government approvals of investment projects and supply bottlenecks, for example, in the power and mining sectors," it said.
The establishment of a Cabinet Committee on Investment should help to fast-track infrastructure-related projects and the government has made it easier for FDI to access a range of industries.
Referring to inflation, Fitch said the pressures have begun to show more pronounced signs of easing in response to weaker economic conditions and the tightening of monetary conditions by the RBI.
"The recent weakness of the exchange rate may, however, complicate policy management and limit the scope for further cuts in RBI policy rates," it added.
First Published: Wednesday, June 12, 2013, 17:02