Economic reforms positive for India's credit worthiness: Fitch

NEW DELHI: The recent slew of measures announced by the government, including FDI in multi-brand retail and diesel price hike, will support India's medium to long-term growth prospects, said Andrew Colquhoun, Head of Asia Pacific Sovereign Ratings at Fitch.

The measures will be a positive factor from a sovereign credit worthiness perspective for India, Colquhoun told ET Now. Fitch Ratings will keep an eye on the implementation of the fiscal consolidation roadmap laid down by the Kelkar Committee report.

Colquhoun feels that the Reserve Bank of India's (RBI) ability to ease the monetary policy will be constrained by elevated inflation levels. Supply side factors will also keep RBI's hands tied, he said.

India's credit rating has partly been kept at a 'BBB-' owing to high fiscal deficit levels, he said. "India has higher fiscal deficit levels compared to other developing Asian countries," Colquhoun added.

Asked about the recent cut in GDP growth forecasts by Fitch to 6% levels for India, Colquhoun said that it does not impact the country's sovereign credit profile. However, signs of persistent weakness in growth will be kept an eye on.

Ratings agencies Standard & Poor's and Fitch have put India's sovereign credit rating on the watch citing poor economic fundamentals, high fiscal and current account deficits and lack of action from the government.

A downgrade would take India's rating to below investment grade, which may force many investors to sell Indian securities or stop incremental investments, depressing capital flows and raising cost of borrowing for the local companies.

India's fiscal deficit, which is the difference between revenue and expenditure stood at 5.8% of GDP in 2011-12, way above 4.6% of GDP provided in the budget.

However, some experts believe that the recent big bang changes may have helped ward off the downgrade threat to a large extent or at least push it back.