Standard and Poor's raises rating on India but warns weak fiscal profile

Standard and Poor's increased India's rating from the speculative category to investment one due to its strong economic prospect but warned of its weak fiscal performance.

Indo-Asian News Service quoted the Standard and Poor's review Tuesday as saying that the upgrade on India's rating reflects its strong economic prospects, external balance sheet and deep capital market.

The ratings for India improved to "BBB-/A-3" from "BB+/B," the review said.

India's economic prospects remain not only strong but also rising gradually as the gross domestic product (GDP) growth is likely to average more than 7.5 percent in the medium term, the agency said.

"The service sector is dynamic, while the industrial sector is benefiting from gradual deregulation, trade liberalization and modest improvements in infrastructure," it said.

India's business environment will improve in the coming years in a bid to sustain private investment and economic growth and the economy will benefit from higher consumption and demand from growing middle class and favorable demographics, according to Standard and Poor's.

But it also noted that the ratings on India remain constrained by the weak fiscal profile, especially its high government debt burden and deficit, which is still one of the worst among all rated sovereigns.

"The consolidated debt of India's central and state governments is projected at 85 percent of GDP and interest payments are likely to consume about 30 percent of general government revenue," the agency said.

"Inappropriate policy mix that increases the vulnerability of India's still-weak fiscal flexibility, and erodes external and growth strengths could lead to downward pressures on the rating," said the agency's credit analyst Ping Chew.

Source: Xinhua