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S&P increases India's foreign currency rating

By siliconindia staff writer | Wednesday, 02 February 2005, 00:00 Hrs

MUMBAI:Global credit rating major Standard and Poor's today upgraded India's foreign currency rating citing strong foreign exchange reserves and impressive economic growth prospects.

The long-term foreign currency rating on India has been raised by one notch to 'BB+', Standard and Poor said adding the upgrade reflects India's improved external position and growth prospects.

The upgrading would help Indian companies access the international market for borrowing funds at lower costs.

India's external balance sheet has strengthened markedly, due to reserves accumulation and prudent debt management, the agency said.

The rating agency said the country's foreign exchange reserves, now more than six times gross financing requirements, mitigate the risk of volatility in external and domestic confidence.

The strong growth in export earnings, particularly from the service and manufacturing sectors, as well as non-debt foreign capital inflows would alleviate the impact of rising imports, it added.

"India's economic prospects are stable and good, with GDP (gross domestic product) growth likely to hover at 6.5 percent to seven percent in the medium term," said the statement.

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

According to the credit rating major, the business environment is likely to improve in the coming years in India, sustaining private investment and economic growth.

The banking system has also improved with reforms and it can now support a higher economic growth, while reducing the contingent risk on the government.

Standard and Poor's hoped that fiscal correction, further improvements in the external sector, and lifting India's potential growth rate substantially would continue to gather pace in the days ahead.

The principal risks to India are generated by a weak fiscal profile, especially its high deficit and debt, and serious fiscal inflexibility, which is one of the worst among rated sovereigns, it said.

Although the central government has stepped up efforts to rein in the deficit, the consolidated central and state government deficits will amount to 10 percent of GDP in the near term, it added.

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