Mumbai: Newly-launched ARC Ratings Monday assigned a 'moderate risk' rating of 'BBB+' to India, with a positive outlook in its first sovereign rating action.
The London-based agency, which has partnered with domestic agency Care Ratings, said it expects India's growth to accelerate from an annual average of 4.8 percent in 2012-14 to 6.5 percent in 2015-17, driven by a recovery in corporate investment, robust domestic consumption and the new government's aggressive growth-enhancing structural reform programme.
"We have assigned a long-term foreign currency issuer rating of BBB+ to India. We have also assigned a long-term local currency issuer rating of A- to the country," the rating agency said, adding that the outlook on both ratings is stable.
The agency further said that the country's growth prospects are a key consideration for its sovereign ratings.
Explaining the rationale for the country's rating, the agency said, "The country's low external vulnerability is characterised by low external debt ratios and moderate current account deficits.
"Foreign currency indebtedness of the government is very low, as are non-resident holdings of government securities."
It also assigned a foreign currency country ceiling of A- and a local currency country ceiling of A to the country.
Short-term sovereign ratings of A-2 were assigned.
All ratings assigned are unsolicited, ARC said in a statement.
On the rating methodologies it would be using while assigning sovereign ratings, ARC Ratings Managing Director and CEO Alexandra Mousavizadeh said the approach is to look at everything and take into consideration more risks which other international agencies usually ignore.
The agency said the foreign reserves, which are at USD 315 billion, are adequate for the country.
It said the pro-business policy reform agenda of the new government will lead to a faster-paced growth.
"One of the most important pillars of this initiative
is the planned implementation of goods and services tax (GST) in early 2016," the agency said, adding that GST would open up the domestic market to trade, dismantling barriers, thereby lowering the cost of doing business.
In addition, more investment spending by the government, albeit cautious of fiscal limits, is also a positive for the country, it added.
ARC expects government's reforms to accelerate growth-enhancing FDI inflows, particularly into critical areas such as energy and transport infrastructure.
Other supporting factors for the ratings include the economy's increasing diversification and the strengthening performance of the export sector, it said.
The agency expects anchored inflation expectations to allow the RBI to cut rates in 2015 without jeopardising its medium-term annual inflation target of 6 percent.
"More accommodative monetary policy will stimulate credit growth and lower the government's domestic borrowing costs," it added.
ARC said factors that could prompt a rating downgrade include under-performance on the policy front, and in turn weak growth, and deteriorating fiscal conditions.
"The country's ratings could be upgraded in the event that private long-term investment, both domestic and foreign, picks up considerably, creating a new plateau for economic dynamism.
"Sharply improved revenue performance of the government would also be favourable to the rating dynamics," it said.
