Fitch Ratings affirmed India's BBB- long-term foreign- andlocal-currency issuer default ratings, with stable outlooks.
The rating agency also affirmed the country ceiling at BBB-and the short-term foreign-currency issuer default rating at F3.
Fitch expects India to witness strong economic growth in themedium term due to an expected pick-up in consumption following a 24% wage hikefor civil servants and an expected better monsoon season. The country'sbusiness environment has also showed some improvements thanks to thegovernment's structural reform agenda as can be seen in the of a new bankruptcy law earlierin 2016.
However, India's weak fiscal balances remain and bankscontinue to strugglewith high nonperforming loans. NPLs rose to 7.6% of total assets in fiscal 2016from 4.6% in fiscal 2015 primarily due to stricter implementation of standards.
Fitch said it could upgrade the country's ratings if fiscalinitiatives lower government debt in the medium term at a faster-than-expectedpace, or if business environment improves due to implemented reforms.
The rating agency could downgrade the country's ratings ifgovernment debt rises due to stalling fiscal consolidation or worsening assetquality in the country's banks. Loose macroeconomic policy settings could alsoresult in a downgrade as it could lead to persistently high inflation levelsand widen current-account deficit.