Fitch Ratings returned India’s sovereign outlook back to “stable” from “negative” a year after its initial downgrade, surprising markets with a validation of the government’s efforts to contain the fiscal deficit and revive economic growth.
The upgrade is likely to be a welcome relief to the government, coming during a period when the rupee had slumped to a record low, and be seen as a reward after months of efforts to cut spending, passing fiscal reforms, and wooing foreign investors.
Analysts, however, were skeptical about the upgrade, reflecting their pessimism about economic growth prospects at a time when inflation, although easing, remains high while the current account deficit remains a thorn to policymakers.
Prime Minister Manmohan Singh’s minority coalition also faces important state votes due before a national election next year, putting into doubt whether it can keep fiscal discipline and pass additional reforms in a gridlocked parliament.
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