New Delhi: Fitch Ratings on Tuesday said risks to India’s medium-term growth are easing with a rapid economic recovery from the pandemic and easing financial sector pressure as it upgraded its sovereign rating to ‘BBB-‘ unchanged. – the lowest investment grade rating – with a negative outlook.
This rating still balances against a strong medium-term growth outlook and external resilience from a solid foreign-reserve buffer, high public debt, a weak financial sector and some backward structural issues, it said.
“We anticipate strong GDP growth of 8.7 per cent in the fiscal year ending March 2022 (FY22) and 10 per cent in FY23 (ending March 2023), supported by the resilience of India’s economy, which has accelerated from delta Has facilitated cyclical recovery from the wave of Covid-19 variant in 2Q21,” Fitch said in ‘BBB-‘ confirming India; with a negative attitude.
Fitch forecasts a growth of around 7 per cent between FY24 (the fiscal year ending March 2024) and FY26 (the fiscal year ending March 2026), buoyed by the government’s reform agenda and the pandemic shock. The generated negative is supported by the closure of the output.
“Government’s growth outlook for promotion of foreign direct investment through production-linked incentive scheme, labor reforms and creation of a ‘bad bank’ as well as an infrastructure investment drive and national monetization pipeline is fully implemented. Nevertheless, there are challenges to this approach, given the uneven nature of economic recovery and the reform implementation risks,” Fitch said.
Fitch had in June last year revised the outlook for India from ‘stable’ to ‘negative’, on the grounds that the coronavirus pandemic had undermined the country’s growth outlook and led to a high public-debt burden. associated challenges were highlighted.
India enjoyed a ‘BBB-‘ rating since its upgrade in August 2006 but the outlook is swinging between stable and negative.
Reaffirming the ‘BBB-‘ rating, Fitch on Tuesday maintained a negative outlook for the rating, reflecting “indefinite uncertainty around the medium-term debt trajectory, particularly India’s limited fiscal headroom relative to rating peers”. looking at.”
‘BBB-‘ is the lowest investment grade rating.
“The country’s rapid economic recovery from the COVID-19 pandemic and easing financial sector pressures are mitigating risks to medium-term growth,” Fitch said in a statement.
Last month, another global rating agency Moody’s Investors Service had reaffirmed India’s sovereign rating and downgraded the country’s outlook from ‘negative’ to ‘stable’, citing looming downside risks to the economy and financial system.
It forecast a growth of 9.3 per cent in the current fiscal, followed by a growth of 7.9 per cent in the next fiscal.
Fitch said mobility indicators have returned to pre-pandemic levels and high frequency indicators point to strength in manufacturing.
“There remains a potential for a resurgence in coronavirus cases, although we anticipate that the economic impact of further outbreaks will be less pronounced than in previous surges, especially given the continued improvement in COVID-19 vaccination rates.” , which has now exceeded the 1 billion doses administered,” it said.
It said India’s strong medium-term growth outlook relative to peers is a key contributory factor to the rating and a significant driver of Fitch’s current baseline of a marginally declining public debt trajectory.
“We believe the immediate financial sector pressure has eased, in part due to regulatory tolerance measures that are providing time for banks to rebuild the capital buffer. This is due to the deterioration in asset quality from the pandemic. The level, while masked by tolerability relief, also appears to be less severe than we had anticipated,” Fitch said.
The recently incorporated National Asset Reconstruction Company (Bad Bank) can help banks address our expected build-up of bad loans while maintaining substantial credit growth, although more details are needed to fully assess its potential. is required.
“Nevertheless, we expect credit growth to remain constrained over the next several years, averaging 6.7 percent annually, unless substantial recapitalization can reduce the risk aversion currently seen among banks.”
Noting that fiscal metrics are also showing signs of improvement, Fitch projected a narrowing of the general government deficit to 10.6 per cent of GDP in FY12, up from 13.6 per cent in FY11. This is in line with the central government’s deficit of 6.9 per cent of GDP in FY12, excluding disinvestment receipts.
Strong revenue growth, especially from Goods and Services Tax collections, is facilitating the government to stay within its budget parameters, despite modest additional spending pressure from the second pandemic wave, it said.
Fitch said high debt levels impede the government’s ability to respond to shocks and could lead to a funding rush for the private sector. India’s general government debt increased to 89.6 percent of GDP in FY 2011.
“We anticipate the ratio to drop slightly to 89 per cent, yet 60.3% above the ‘BBB’ average in 2021. Our medium-term baseline forecasts that the debt ratio will fall by FY26 (ending March 2026) Should be 86.9 percent.
Fitch believes the risk is tilted towards higher inflation, given persistent core inflation, rising energy prices and rising inflation expectations.
The Indian economy declined by 7.3 per cent in the last fiscal after a growth of 4 per cent in 2019-20. The economy grew at a rate of 20.1 per cent in the April-June quarter of the current financial year.
In addition, the first four months of FY 2021-22 have seen foreign direct investment (FDI) of $64 billion.
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