These warnings signs by Fitch should scare any government coming to power after 2019 election

By: |
Published: April 6, 2019 1:21:50 PM

Several warning signs regarding the Indian economy must ring alarm bells for any government hoping to come to power after the Lok Sabha election 2019.

fitch, fitch rating, india rating, fitch india rating, bbb-, india raating steady, india rating constant, भारत की रेटिंग, रेटिंग एजेंसी, rating agency, rating agency fitchFitch ratings has kept India’s rating unchanged at BBB-, which is the lowest investment grade, along with a stable outlook.

With an eye on general elections, all political parties in India are competing with each other, offering various doles and deals to the public. However, several warning signs regarding the Indian economy must ring alarm bells for any government hoping to come to power after the Lok Sabha election 2019.

Among such signs are a few flagged by Fitch Ratings in a recent report. Fitch Ratings this week denied India a sovereign rating upgrade for the 13th time in a row.

Fitch ratings has kept India’s rating unchanged at BBB-, which is the lowest investment grade, along with a stable outlook. The report cites various challenges faced by the country such as high public debt, weak financial sector and lagging structural reforms.

Falling incomes

The estimated real GDP growth for FY19 has been kept low at 6.9 per cent, compared with 7.1 per cent a year ago. The deceleration in recent quarters has been mainly driven by domestic factors such as weak manufacturing performance and low food inflation which is pushing down farmer’s incomes, said Fitch Ratings.

The report acknowledges the efforts made by various governments in the past in pursuing reforms. However, it said: “Polls indicate that the next government will likely have a smaller majority in the lower house of parliament, the Lok Sabha, than the current government and it might find it more difficult for major reforms such as GST”.

Fiscal maths

Citing the challenge emerging from a weak fiscal position, the report said that the next government’s medium term fiscal policy will be of particular importance. The ongoing campaigns by the political parties involve promises of greater income support with direct cash transfers and farm loan waivers, which would require a higher spending by the government. However, even though the government deficit is stable at 7 per cent, the off-budget financing has increased.

This has resulted in an increase in total government debt as a percentage of the GDP from 67 per cent in 2014 to 68.8 per cent, the report said. Any incoming government would have to reduce this number to 60 per cent of the GDP by March 2025, according to the Fiscal Responsibility and Budgetary Management Act 2018, added the report.

Weak credit

Moreover, although the overall credit growth is picking up with improving condition of NPAs, yet the banking sector earnings remain weak, particularly of PSU banks as the speed of resolution remains slow. Further, the stress in NBFCs sector has also reduced the credit offtake.

The report also pointed out towards the rising unemployment in the country, and the underlying structural weaknesses with a weak governance and low human development.

Considering all this, it would be interesting to see how the new government formed post elections will rectify the underlying problems and put the Indian economy back on track.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

FinancialExpress_1x1_Imp_Desktop