India’s Current Sovereign Ratings
Fitch, in its latest rating review, has affirmed India’s sovereign rating at BBB-, which is the lowest investment grade rating. Despite pressure from the government and corporate for an upgrade in the rating, Fitch has kept its sovereign rating on India unchanged. Although Fitch acknowledged India’s strong growth and recent economic reforms, it has a given a BBB- rating owing to the weak state of the government’s finances. According to the rating agency, India’s general government debt burden was 67.9% of GDP whereas the ‘BBB’ median is 40.9%. Also, Fitch has estimated a wide fiscal balance of -6.6% of GDP for FY17.
Similarly, India’s long-term foreign and local-currency issuer default ratings were also fixed at ‘BBB-’. Fitch expects a strong medium-term growth outlook as well as favourable external balances with a weak fiscal position and difficult business environment. However, it expects the business environment to gradually improve with the implementation of the government’s structural reform agenda.
Fitch has said that economy of the country is less developed on a number of structural metrics. In India, the average per capita GDP remains low at $1,714, whereas the ‘BBB’ range median is $9,701. It has also observed that the governance standards of India also remain weak as evident from the World Bank governance indicator for India at 46th percentile when compared to the ‘BBB’ median of 58th percentile.
An official committee of the government reviewing the Fiscal Responsibility and Budget Management (FRBM) Act has recommended lowering of the government debt to 60% of GDP. The finance minister in his February 2017 budget speech has recognised that India is largely a tax non-complaint society with a low number of taxpayers. The major liabilities for the sovereign emanates largely from public sector banks with the menace of banking sector’s non-performing assets (NPAs) continuing to linger. Fitch expects the NPAs to rise to 9.7% of total loans by the end of FY17.