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Fitch: India is not suffering from policy paralysis

Even as India continues to suffer from a crisis of confidence among investors, with fault being placed on political wrangling and poor leadership, agency Fitch Ratings told CNBC that policymakers haven't fared as badly as many industry watchers have suggested.

"I would disagree with the diagnosis of 'policy paralysis'... I wouldn't go that far," Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch, told CNBC on Monday.

(Read more: Emerging markets: dissecting the good from bad)

According to Colquhoun, Indian policy makers have made important progress on several contentious issues this year.

"In the year to March 2013, the government achieved its fiscal deficit target, we've seen measures on diesel prices and, some, albeit limited, structural reforms," he said.

Dan Istitene | Getty Images

If Indian policy makers can deliver on their promises, Colquhoun said Fitch's credit rating for India, which stands at BBB-minus with a stable outlook, should remain secure.

"If the authorities stay focused on delivering growth in line with economy's supply potential... without leading to inflationary pressure, pressure on the trade deficit, or a widening of the fiscal deficit, then that could reassure markets and be supportive for its [India's] credit profile and the BBB minus rating," he said.

(Read more: India's drive to boost investment just isn't working)

Last week credit ratings agency Standard & Poor's told CNBC there was a one in three chance of India getting a downgrade from them in the next one to two years, which would give the country "junk" status after cutting its outlook on India's BBB minus rating to negative last year.

Colquhoun said the one concern Fitch had was the risk of the rupee's depreciation reaching the point where it affects stability of India's financial markets.

Excessive falls in India's domestic currency the rupee in recent months have drawn attention to India's economic plight. Although expectations of tapering first triggered the rout, problems at home have exacerbated the fall, as India struggles to contend with a challenging combination of low growth, high inflation and an expanding current account deficit.

(Read more: Why the rupee may not be headed to 70)

"One of the shoes that could drop is via corporate balance sheets (in terms of decreasing their value). That's not to say we expect that and it's something we could keep close watch on," he added.

The rupee has fallen near 17 percent against the dollar year to date and is the world's worst performing currency this year.

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