NEW DELHI: Fitch Ratings unexpectedly raised India's sovereign foreign and domestic currency ratings to investment grade on Tuesday.
The agency cited progress in fiscal consolidation as a key factor in prompting the upgrade.
"Fiscal consolidation is at last taking hold in India, reinforced by the impressive growth story and India's strong external balance sheet. Public finances are still weak but they are no longer an insuperable constraint on this rating," the agency said.
With Moody's already rating India as investment grade and Standard & Poor's ranking it just one notch away from prime status, with a positive outlook, the news will boost reformers in New Delhi who are arguing for faster progress towards full capital account convertibility.
The Reserve Bank of India, the central bank, said the other day it would soon make public a government-sponsored but non-binding report outlining a "road map" to capital account convertibility.
India currently allows its currency to be convertible only on the trade or current account. Some restrictions have been relaxed but controls remain a barrier to India's full integration with the world economy. The change would allow Indian individuals and businesses to invest more freely overseas.
India has long been seen as a conundrum for rating agencies, which have had to weigh its weak public finance ratios against its rapid build-up of foreign exchange reserves, relatively low levels of external debt and easy access to a captive domestic debt market.