Fitch affirms India

Fitch Ratings said it affirmed the Republic of India's foreign- and local-currency issuer default ratings at BBB-, the country ceiling at BBB- and the short-term foreign-currency rating at F3.

The outlook is stable.

"Fitch upgraded India to investment grade in August 2006. One year on, the growth story remains firmly intact, reinforced by strong net capital inflows and further advances in India's external solvency and liquidity indicators. Fiscal consolidation, too, has continued to move ahead, narrowing the gulf between India and many of its rating peers," Paul Rawkins, senior director in Fitch's sovereigns team, said in an agency rating. India's general government deficit is set to fall to 5.6% of GDP in the fiscal year ending March 2008 from 10% of GDP as recently as 2001-2002, and tighter monetary policy has succeeded in reducing inflation to about 3% and curbing the rate of domestic credit expansion.

However, the agency noted that externally driven pressures on liquidity and rapidly escalating asset prices continue to pose challenges. And while India appears to have taken some decisive steps toward entrenching fiscal discipline, Fitch said the track record is still short, while a proliferation of off-budget items means that the consolidated deficit is understated by about 2% of GDP. In addition, the general government debt-to-GDP ratio, at 78%, is more than double the BBB median.

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