by Elton Gomes
On Thursday, Fitch Ratings retained its sovereign rating for India at BBB-, which is the lowest investment grade with a stable outlook. Fitch said a weak fiscal position continues to constrain the ratings, and macroeconomic outlook had significant risks.
The government has been making a strong pitch to Fitch Ratings for an upgrade, particularly since rival Moody’s Investors Service, in November 2017, gave India its first sovereign rating upgrade since 2004.
Fitch had last upgraded India’s sovereign rating from BB+ to BBB- with a stable outlook on August 1, 2006.
After the last rating upgrade on August 1, 2006, Fitch had changed the outlook to negative in 2012. After that, it changed the outlook again to stable in the following year, though it kept the rating unchanged at the lowest investment grade.
The Fitch review for annual sovereign rating comes after India’s rating received an upgrade by Moody’s after a gap of 14 years, while Standard&Poor retained its rating for the country.
Growth forecasts
Fitch said that the Indian economy would shrug off any lingering effects of demonetisation and GST in 2018-19 and 2019-20.
“India’s rating balances a strong medium-term growth outlook and favourable external balances with weak fiscal finances and some lagging structural factors, including governance standards and a still-difficult, but improving business environment,” Fitch said, the Hindu reported.
The credit rating agency said that a favourable economic growth outlook supported India’s credit profile, though the country’s real GDP growth fell to 6.6 percent in financial year (FY) 2017-18.
“Fitch forecasts growth to rebound to 7.3% in FY19 and 7.5% in FY20, as a temporary drag will fade from the withdrawal of large-denomination bank notes in November 2016 and the introduction of a GST in July 2017,” the agency said, as per the Hindu report.
On inflation
In terms of inflation for FY2019, Fitch said it “expects inflation to average close to 4.9% in FY19, still almost double the ‘BBB’ range median of 2.5% for 2018.” The agency said it expected the Reserve Bank of India to raise its policy repo rate in 2019, as India experiences further growth.
What are sovereign ratings?
Sovereign credit ratings can be described as a guide to gauge an economy’s monetary, fiscal, and regulatory environment, along with its policy consistency. A favourable sovereign rating raises the economy’s attractiveness as a global destination for investment and to conduct business.
How are they calculated?
No specific mathematical formulae exist for the calculation of sovereign ratings. Credit rating agencies generally rely on publicly available information, historical trends, discussions with government officials, and future outlook to determine credit ratings.
What is the scale?
Starting from excellent to poor, the rating scale is as follows: AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C, D. Any rating below a BBB- is considered risky.
How does sovereign ratings affect you?
People with jobs such as a teacher, manager, doctor, software, real estate, and other regular jobs could benefit from an upgrade of India’s sovereign ratings. An upgrade would imply a revival of the economy. A strengthened economy, in turn, could prompt companies to undertake expansion plans and increase hiring, thereby raising job prospects for many.
Elton Gomes is a staff writer at Qrius
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