Fitch Ratings on Monday cautioned that India’s patchy performance on policy implementation, and the approach of elections in 2014 could impede fiscal consolidation, suggesting political and implementation risks remain significant. The FY14 Union Budget, this month, will be an important gauge of the government’s commitment to fiscal consolidation and reform in general, the rating firm said.
“However, it is not the sole rating driver. A credible medium-term fiscal consolidation plan remains key,” Fitch said.
Fitch and Standard & Poor’s had cut the outlook on India’s “BBB-minus” rating to “negative”, threatening to cut the country to below investment grade — or the junk rating.
“Public commitments and policy announcements by the Indian government so far in 2013 are encouraging signals that the authorities want to maintain the momentum towards fiscal consolidation and structural reform generated since last summer,” Fitch Ratings said. However, policy execution and the impact on trend growth will remain key to our ratings assessment, it said in a statement on Monday.