Fitch upgrades India outlook to stable
Global ratings agency Fitch on Friday upgraded India’s long-term sovereign debt outlook to stable from negative, citing the economic recovery India has seen since the onset of the pandemic. The agency also said that the ongoing geopolitical issues would weigh less on India than they do on its peers.
Fitch, however, reduced India’s gross domestic product (GDP) growth forecast for the current fiscal (FY23) to 7.8 per cent from 8.5 per cent, citing inflationary impacts of the global commodity price shock.
With this move. the big three ratings agencies — Fitch, Moody’s and S&P — all have a stable outlook on India.
“The revision in outlook reflects India's
rapid economic recovery and easing financial sector weaknesses despite near-term headwinds from the global commodity price shock. We expect robust growth relative to peers to support credit metrics in line with the current rating,” Fitch said.
“GDP growth will remain robust at 7.8 per cent in FY23 compared with the 3.4 per cent growth across other countries rated 'BBB'. However, this is a downward revision from our 8.5 per cent forecast in March as the inflationary impact of the global commodity price shock is dampening some of the positive growth momentum,” it added.
The agency forecast an average growth rate of 7 per cent between FY24 and FY27 and said that this was underpinned by the government's infrastructure push, reform agenda and easing pressures in the financial sector. Nevertheless, it added, there are challenges to this forecast, given the uneven nature of the economic recovery and implementation risks for infrastructure spending and reforms.
The government welcomed the revision in outlook. “It is an acknowledgement of the government’s reforms agenda that has placed the economy on a strong footing, cushioning it from external variables & laying the roadmap for steady growth,” tweeted Union Commerce and Industry Minister Piyush Goyal.
As reported earlier, in recent meetings with ratings agencies, officials led by Chief Economic Advisor V Anantha Nageswaran pushed for a ratings and outlook upgrade and pitched India’s strong domestic economic recovery post the pandemic and efforts made by the Centre and the RBI to contain inflationary pressures.
However, there were still some weak spots, and according to sources, the assessment provided to ratings agencies has been a realistic one and without unfeasible expectations. Officials have admitted that global inflationary pressures due to Russia’s invasion of Ukraine have hit household savings and corporate margins, and will impact growth. On the outlook, Fitch said that high nominal GDP growth has facilitated a near-term reduction in the debt-to-gdp ratio but public finances remain a credit weakness with the debt ratio broadly stabilising.