Fitch raises India outlook to stable, cuts GDP estimate

NEW DELHI: Fitch Ratings upgraded its outlook on India’s long-term foreign-currency issuer default rating to stable from negative, citing diminished risks to medium-term growth and easing financial sector weaknesses.

“India’s economy continues to see a solid recovery from the Covid-19 pandemic shock,” the rating agency said on Friday. “We expect robust growth relative to peers to support credit metrics in line with the current rating.” Standard and Poor’s and Moody’s had earlier upgraded their outlook on India to stable. S&P has assigned a ‘BBB-’ rating to India, while Moody’s has a Baa3 rating.

Fitch, too, affirmed its BBB- rating, the lowest investment grade, but slashed its economic growth estimate for FY23 to 7.8% from the 8.5% it forecasted in March, citing the inflationary impact of surging energy and commodities prices on India’s growth momentum.

The World Bank had also lowered its gross domestic product (GDP) growth forecast to 7.5% from the April estimate of 8% on surging inflation, supply chain disruptions, and sustained geopolitical tensions. The Reserve Bank of India (RBI) expects the economy to grow at 7.2% in the current year. India’s GDP expanded by 8.7% in the previous fiscal.

The rating agency noted that high nominal GDP growth has facilitated a near-term reduction in the debt-to-gdp ratio, although public finances remain a credit weakness with the debt ratio broadly stabilizing. The rating also takes into account India’s external resilience because of solid foreignexchange reserves, Fitch said.

According to Fitch, India’s strong growth outlook relative to peers is a key supporting factor for the rating and will sustain a gradual improvement in credit metrics. “We forecast growth of around 7% between FY24 and FY27, underpinned by the Centre’s infrastructure push, reform agenda and easing pressures in financial sector,” it said, adding that there are challenges to the forecast, given the uneven nature of the economic recovery and implementation risks for infrastructure spending and reforms.

It also said India’s debt-togdp ratio benefits in the near term from a sharp acceleration in nominal GDP growth. According to the rating company, the debt-to-gdp ratio will drop to 83% in FY23 from a peak of 87.6% in FY21, but it remains high compared to the 56% median in the peer group.

“Beyond FY23, however, our expectations of only a modest narrowing of the fiscal deficit and rising sovereign borrowing costs will push the debt ratio up slightly to around 84% by FY27, even under an assumption of nominal GDP growth of around 10.5%,” it said.

FITCH SLASHED INDIA GROWTH ESTIMATE FOR FY23 TO 7.8% FROM THE 8.5% IT FORECAST IN MARCH