Fitch raises India's sovereign rating to stable on steps to trim deficit

NEW DELHI (AFP) - Global ratings agency Fitch on Wednesday revised India's sovereign rating to stable from negative, citing steps taken to curtail the deficit, in a rare piece of good news for the embattled Congress government.

The move was a reversal of the negative rating the agency assigned to India in June last year and came after rival credit rating agency Standard and Poor's upheld its negative outlook for the Indian economy a month ago.

"The revision of the outlook to stable reflects the measures taken by the government to contain the budget deficit," Fitch said in statement. It noted the fiscal deficit was 4.9 per cent of gross domestic product (GDP) in the last financial year to last March compared with 5.7 per cent in the previous year.

The agency said the upgrade also recognised progress, "albeit limited", in tackling some of the structural impediments to economic growth, such as regulatory uncertainty and delays in government approvals of investment projects.

The revision coincided with official data released on Wednesday showing industrial output grew by a worse-than-expected 2 per cent in April, raising questions about the strength of the Asian giant's recovery. It also came as India's currency was clawing its way higher from a lifetime low of 58.98 rupees to the United States dollar hit on Tuesday.

The upgrade was a boost for the Congress government of Prime Minister Manmohan Singh, which had been fighting charges of economic mismanagement and corruption ahead of general elections due by next year.

Fitch said it expected the government to "broadly" meet its budget deficit target of 4.8 per cent of GDP this financial year to March next year. It forecast a "modest" economic recovery after India posted decade low growth of 5 per cent last year. It projected annual growth of 5.7 per cent this year and 6.5 per cent in the following two years.