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India's rating downgrade chances depend on reforms: Fitch

February 01, 2013 17:28 IST

Prospects of downgrading India's credit rating will depend on whether government can stick with its reforms agenda and consolidate public finances, Fitch Ratings said on Friday.

The global rating agency last month had warned of downgrading India's sovereign rating in the next 12-24 months, citing slowing GDP growth and weak public finances.

"In emerging Asia, prospects for a downgrade of India's 'BBB-'/Negative ratings will hinge on whether the authorities can stick with their reformist agenda and consolidate public finances," Fitch said in a statement.

Fitch also said that positive rating momentum has ebbed in emerging Asian economies amid a slowdown both in sovereign balance sheet improvement and structural reforms in key countries.

In recent times, the Indian government has unveiled a slew of reforms including FDI relaxation in retail and aviation sectors and partial de-regulation of diesel prices.

The government expects to limit fiscal deficit for the current financial year at 5.3 per cent.

In June 2012, Fitch had placed negative outlook on India's sovereign rating.

"The negative outlook suggests that there is a ... likely chance of revising the rating downward from BBB- in the 12-24

months," the rating agency had said in January.

Finance Minister P Chidambaram on Thursday said efforts are being made to boost investor confidence and revert to the high growth path.

The Finance Minister reiterated government's commitment on observing the path of fiscal consolidation and imposition of fiscal targets and policies that would make necessary fiscal correction needed for the economy and take the economy back to the path of higher growth.

Fitch said that weaknesses in the major advanced economies, particularly the euro zone, exert a drag on global growth and sovereign credit quality.

"Seven of the world's 10 largest economies are on Negative Outlook, including three major 'AAA'-rated sovereigns - the US, the UK and France," it noted.

Regarding China, the rating agency said the country faces the twin challenges of rebalancing its economy towards consumption and away from investment besides managing the consequences of the extraordinary run-up in leverage in its economy since 2008.

"In Japan, the newly elected Abe government's stimulus plans are not in themselves a negative rating trigger for the highly indebted Japanese sovereign at 'A+'/Negative. Its ability to achieve medium-term fiscal consolidation is a key rating driver," Fitch said.

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