Fitch affirms India rating at ‘BBB-’; outlook ‘negative’

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November 17, 2021 3:30 AM

The agency forecast India's GDP growth rate in FY22 at 8.7%, a tad lower than RBI, IMF and peer Moody's Investor Services projected recently, but said the country's economy would grow at 10% in FY23.

"India's rating balances still-strong medium-term growth outlook, external resilience from solid foreign reserve buffers, against high public debt and weak financial sector," Fitch said."India's rating balances still-strong medium-term growth outlook, external resilience from solid foreign reserve buffers, against high public debt and weak financial sector," Fitch said.

Fitch Ratings on Tuesday affirmed India’s long-term foreign-currency issuer default rating at ‘BBB-‘ with ‘negative’ outlook, citing reduced risk to the country’s medium-term prospects thanks to its rapid economic recovery from the Covid pandemic and easing financial sector pressures.

The agency forecast India’s GDP growth rate in FY22 at 8.7%, a tad lower than RBI, IMF and peer Moody’s Investor Services projected recently, but said the country’s economy would grow at 10% in FY23.

“Mobility indicators have returned to pre-pandemic levels and high-frequency indicators point to strength in manufacturing sector. The potential remains for a resurgence in coronavirus cases, though we anticipate economic impact of further outbreaks would be less pronounced than previous surges, particularly given sustained improvement in the Covid-19 vaccination rate, which has now surpassed 1 billion doses administered,” Fitch said.

” We forecast growth of around 7% between FY24 and FY26, supported by the government’s reform agenda and the closing of the negative output resulting from the pandemic shock. The government’s production-linked incentive scheme to boost foreign direct investment, labour reform and the creation of a ‘bad bank’, along with an infrastructure investment drive and the National Monetisation Pipeline, should support the growth outlook if fully implemented. Nevertheless, there are challenges to this outlook, given the uneven nature of the economic recovery and reform implementation risks,” it added

“India’s rating balances still-strong medium-term growth outlook, external resilience from solid foreign reserve buffers, against high public debt and weak financial sector,” Fitch said.

Appreciating that banks and NBFCs now pose a lesser downside risk to the real economy thanks to the steps taken by the government and the banking regulator to repair their impaired balance sheets, Moody’s Investors Service recently affirmed India’s sovereign rating at Baa3, the lowest investment grade, while upgrading the country’s outlook to ‘stable’ from ‘negative.’

Moody’s was the only agency to revise up India’s sovereign rating for the first time in over a decade in November 2017, while its peers — S&P and Fitch — haven’t yet given the country an upgrade. Moody’s had, in June 2020, trimmed India’s rating by a notch to the lowest investment grade, which is just a notch above junk status, and retained the ‘negative’ outlook, citing weakening fiscal metrics in the wake of the Covid-19 outbreak.

India’s general government debt burden increased sharply from 74% of GDP in 2019 to an estimated 89% of 2020 GDP, significantly higher than the Baa median of around 48%, Moody’s observed.

Both the IMF and the RBI have projected India’s real GDP growth to recover to 9.5% in FY22 (even with this rate of growth, the country’s real GDP at the end of 2021 would exceed the level in 2019 by just 1.5%). Moody’s said in its latest estimate that India’s real GDP would rebound to a growth rate of 9.3% in the current fiscal year.

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