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Fitch gives India BBB- rating, indicates stable outlook
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
India’s long-term foreign currency issuer default rating (IDR) is rated at BBB- with a stable outlook by Fitch, credit rating agency. The Fitch report points that India’s rating is based on the balance of a strong medium-term growth outlook and favourable external balances. The economy, however, “has weak fiscal finances and some lagging structural factors, including governance …
Continue reading “Fitch gives India BBB- rating, indicates stable outlook”
India’s long-term foreign currency issuer default rating (IDR) is rated at BBB- with a stable outlook by Fitch, credit rating agency.
The Fitch report points that India’s rating is based on the balance of a strong medium-term growth outlook and favourable external balances.
The economy, however, “has weak fiscal finances and some lagging structural factors, including governance standards and a still-difficult, but improving, business environment,” the report said.
Fitch remains positive on the favourable economic growth outlook, supporting the economy’s credit profile. This is despite the real GDP growth falling to 6.6% from the 7.1% estimate in the financial year 2017-2018.
“India’s five-year average real GDP growth of 7.1% is the highest in the APAC region and among ‘BBB’ range peers,” Fitch said in its report named, “Fitch Affirms India at ‘BBB-‘; Outlook Stable.”
India’s growth is forecasted to rebound to 7.3% this financial year and further move up by 0.2% in the next as the “temporary drag will fade” from the withdrawal of demonetisation on November 8, 2016, and from the introduction of Goods and Services Tax (GST) in July 2017, the report said.
The rating agency remains confident on the GST regime. The report points that the regime “will support growth in the medium term once the teething issues dissipate.”
On the monetary policy, Fitch gives a thumbs up to the Reserve Bank of India (RBI) for keeping the inflation in the target range of 4%. The ratings agency expects the inflation to average close to 4.9% this financial year.
On raising the policy repo rate, Fitch forecasts that the central bank may increase the rates from 6% by next year.
“India’s relatively strong external buffers and the comparatively closed nature of its economy make the country less vulnerable to external shocks than many of its peers,” the report said.
With the government reform of opening up the economy, the credit ratings firm said that this move will help in recovering the Foreign Direct Investments (FDIs), particularly if combined with further investment climate reforms.
India is unable to upgrade its ratings due to its weak fiscal balances.
On the bank recap, NPA norms and the recent PNB fraud case, Fitch supports the government’s move on injecting capital. The report said, “These banks are likely to need additional government capital, however, in particular after a recent high-profile fraud case involving $2.2 billion in Punjab National Bank.”
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