Fitch revises outlook on India to stable from negative

“The Outlook revision reflects our view that downside risks to medium-term growth have diminished due to India’s rapid economic recovery and easing financial sector weaknesses, despite near-term headwinds from the global commodity price shock,” Fitch said in a statement on June 10.

“We expect robust growth relative to peers to support credit metrics in line with the current rating,” the rating agency added.

Fitch expects India’s GDP to grow by 7.8% in FY23 compared with its median forecast of 3.4 % for countries it rated BBB.

The ratings agency had lowered the outlook to negative in June 2020 after the imposition of the draconian nationwide lockdown to contain the spread of the cC-19. However, the stringent restrictions on movement and economic activity dragged the economy into a technical recession – or two consecutive quarters of year-on-year decline in GDP.

However, growth has since rebounded, albeit due to a favourable base effect. As per the statistics ministry’s first provisional estimate, India’s GDP liekly grew 8.7% in FY22, with the Reserve Bank of India (RBI) forecasting growth will decline to 7.2% in FY23. As such, Fitch’s forecast is 60 basis points higher than the central bank’s.

In the medium-term, Fitch said India’s growth outlook was “strong” relative to its peers. It expects growth of around 7% between FY24 and FY27. “Nevertheless, there are challenges to this forecast, given the uneven nature of the economic recovery and implementation risks for infrastructure spending and reforms,” Fitch said.

The rebound from a 6.6% contraction of the economy in FY21 has been key in supporting India’s elevated public debt levels, which have been a key rating weakness.

“We forecast the debt-to-GDP ratio to drop to 83.0 percent in FY23 from a peak of 87.6% in FY21, but it remains high compared to the 56 percent peer median. 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 84.0% by FY27,” Fitch said.

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Author: shehan

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