Fitch Ratings Affirmed BBB- Rating For India With A Negative Outlook

Fitch Ratings affirmed its investment grade, Long-Term Foreign-Currency Issuer Default Rating (IDR) at the lowest level, which is BBB- rating for India. The globally renowned rating agency reported a negative outlook for the country.

Investment outlook

In the report, Fitch mentioned, "India's rating balances a still-strong medium-term growth outlook and external resilience from solid foreign-reserve buffers, against high public debt, a weak financial sector and some lagging structural issues. The country's rapid economic recovery from the Covid-19 pandemic and easing financial sector pressures are narrowing risks to the medium-term growth outlook."

Forecast of GDP growth

The agency has given a forecast of robust GDP growth of 8.7% in the fiscal year ending March 2022 (FY22) and 10.0% in FY23, supported by the resilience of India's economy, which has facilitated a swift cyclical recovery from the Delta Covid-19 variant wave in 2Q21.

Manufacturing sector

Additionally, in India, mobility the economic indicators have returned to the pre-pandemic levels and high-frequency indicators point to strength in the manufacturing sector. According to the report, the potential remains for a resurgence in coronavirus cases, though we anticipate the economic impact of further outbreaks would be less pronounced than previous surges, particularly given the sustained improvement in the Covid-19 vaccination rate.

Fiscal metrics

Fitch in the report stated, "Fiscal metrics are also showing signs of improvement and we forecast the general government deficit to narrow to 10.6% of GDP in FY22, from 13.6% in FY21. This is consistent with an FY22 central government deficit of 6.9% of GDP, excluding divestment receipts. Per the government's deficit definition, including divestment, this would be 6.6% of GDP, which is slightly below the budget target."

Future anticipation

However, in India, a strong revenue growth, particularly 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. Hence, the rating agency has given a forecast interest payments/revenue of 28.2% in FY22 (2021 'BBB' median: 6.9%), which will limit the sovereign's fiscal flexibility.

Recently, Moody's Investors Service upgraded India's sovereign credit rating outlook to stable from negative, but S&P Global Ratings in July maintained the lowest investment grade rating with a stable outlook for India.