Fitch Ratings on Tuesday said it has maintained the ‘BBB-’ sovereign rating — the lowest investment grade — on India, thanks to “weak fiscal position and difficult business environment”. It has also retained “stable” outlook for India’s ratings. Fitch also predicted India’s gross domestic product (GDP) to grow 7.7% in both 2016-17 and 2017-18, compared with 7.1% in 2015-16.
The global rating agency also noted that it’s “not likely” that the Indian government’s budgeted Rs 70,000-crore capital injection into public-sector banks, struggling with huge stressed assets, in the four years through 2018-19 will be sufficient. “India is not immune to external shocks, but the country’s strong external finances make it less vulnerable than many of its peers, but weak public finances continue to constrain India’s ratings,” the agency said.
Fitch expects structural reforms to drive up growth, along with higher real disposable income aided by the implementation of the seventh pay commission recommendations and an average monsoon. It said the stable outlook reflects the assessment that upside and downside risks to the ratings are broadly balanced.
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Fitch’s latest rating of the country comes even as government officials and some economists and bankers have been pitching for a rating upgrade by global agencies, stressing the country’s strong economic fundamentals, political stability and a slew of reforms such as easing of FDI rules. “Why is India, the fastest-growing emerging economy for over one year now with all macroeconomic fundamentals being positive, rated just BBB-?” eminent banker Deepak Parekh told PTI in an interview on Monday.
“On the other hand, Italy and Spain, which are far weaker and smaller, are having much higher ratings than us,” he said. Fitch also said India’s current-account balance to ease to -0.9% in 2016-17, and foreign reserves to build up to 8.4 months of current external payments.