Fitch Ratings on Tuesday affirmed India’s sovereign credit rating at ‘BBB-‘ with a stable outlook, saying the rating derives strengths from a robust growth outlook and still-resilient external finances.
Fitch, however, expects a modest fiscal slippage in current financial year with central government fiscal deficit at 6.6 per cent of GDP against 6.4 per cent pegged in Budget, due to higher food and fertiliser subsidies. Fitch also projected the central government setting a 6 per cent of GDP deficit target in its upcoming Budget and retaining its 4.5 per cent FY26 target, but added that it may be difficult to achieve.
“Fiscal pressures could arise from upcoming national elections in May 2024, but the incumbent government’s dominant political position likely limits these risks,” it noted. Fitch said India’s robust medium-term growth outlook is a key supporting factor for the rating. A clear improvement in corporate and bank balance sheets, which were under strain prior to the pandemic, is likely to facilitate a steady acceleration in investment in the coming years.
Nevertheless, risks remain given dynamics in labour force participation, the lagging rural sector recovery, and uneven reform implementation record, Fitch added. “Fitch Ratings has affirmed India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘ with a Stable Outlook,” the rating agency said in a statement.
‘BBB-‘ is the lowest investment grade rating.
India enjoyed ‘BBB-‘ rating since an upgrade in August 2006 but the outlook has oscillated between stable and negative. In June this year, Fitch had upped India’s rating outlook to ‘stable’ from ‘negative’. Fitch has forecast GDP growth of 7 per cent in the fiscal year ending March 2023 (FY23) on the back of sustained consumption and investment recoveries. “India is somewhat insulated from the gloomy global outlook in 2023, given its modest reliance on external demand. Nevertheless, we expect declining exports, heightened uncertainty and higher interest rates to slow growth to 6.2 per cent in FY24,” it said.
Fitch added that India’s rating reflects strengths from a robust growth outlook compared to peers and still-resilient external finances, which have supported the country in navigating the large external shocks during the past year. These are offset by India’s weak public finances, illustrated by high deficits and debt relative to peers, as well as lagging structural indicators, including World Bank governance indicators and GDP per capita, it added.
Fitch estimates India’s debt to GDP ratio to come down to 82.1 per cent this fiscal, from 87.6 per cent in 2020-21. Fitch forecast the current account deficit (CAD) to rise to 3.3 per cent of GDP this fiscal, from 1.2 per cent in the previous year, due to a rising import bill from high commodity prices and robust domestic demand, and declining exports.
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