Standard & Poor's Ratings Services affirmed its 'BBB-' long-term and 'A-3' short-term sovereign credit ratings on the Republic of India. The outlook on the long-term rating remains stable. The ratings on India reflect the country's strong economic growth prospects and its deep government debt market, which helps accommodate its weak fiscal position. "India's economic prospects remain strong with growth likely to average more than 7.0% in the medium term," said Standard & Poor's credit analyst Takahira Ogawa. "Underpinning that growth is the gradual deregulation of the industrial sector, continued trade liberalization, a dynamic service sector, and modest improvements in infrastructure."
"The ratings on India remain constrained by a weak fiscal profile, especially the high government debt burden and deficit, which are still among the largest for rated sovereigns," Mr. Ogawa said. Commitment to fiscal consolidation across all levels of government has been one of the supporting factors for the sovereign credit rating in the past several years. However, higher oil prices and populist measures for the coming general election have weakened the government's efforts in fiscal consolidation.
The stable rating outlook balances India's good external liquidity and growth prospects with its weak fiscal flexibility. An improvement in the sovereign ratings will depend on resumed fiscal consolidation that leads to a materially lower debt and interest burden, and additional reforms that lift the country's growth prospects and income levels. On the other hand, further fiscal slippage, a marked decline in external liquidity indicators, or policy measures that weaken economic growth prospects, could lead to downward pressure on the ratings.
The consolidated debt of India's central and state (general) governments is projected at 82% of 2008 GDP, while interest payments are likely to consume about 30% of general government revenue. India's contingent liabilities are also high. Government-guaranteed debt alone amounts to nearly 9% of 2007 GDP.
"The ratings on India remain constrained by a weak fiscal profile, especially the high government debt burden and deficit, which are still among the largest for rated sovereigns," Mr. Ogawa said. Commitment to fiscal consolidation across all levels of government has been one of the supporting factors for the sovereign credit rating in the past several years. However, higher oil prices and populist measures for the coming general election have weakened the government's efforts in fiscal consolidation.
The stable rating outlook balances India's good external liquidity and growth prospects with its weak fiscal flexibility. An improvement in the sovereign ratings will depend on resumed fiscal consolidation that leads to a materially lower debt and interest burden, and additional reforms that lift the country's growth prospects and income levels. On the other hand, further fiscal slippage, a marked decline in external liquidity indicators, or policy measures that weaken economic growth prospects, could lead to downward pressure on the ratings.
The consolidated debt of India's central and state (general) governments is projected at 82% of 2008 GDP, while interest payments are likely to consume about 30% of general government revenue. India's contingent liabilities are also high. Government-guaranteed debt alone amounts to nearly 9% of 2007 GDP.
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