Fitch Ratings has affirmed India’s sovereign rating with a stable outlook, citing the country’s robust growth outlook and resilient external finances. The rating agency kept India’s credit rating unchanged at ‘BBB-‘, the lowest investment grade rating, since August 2006. The agency forecast India to be one of the fastest-growing rated sovereigns globally at 6% in the current fiscal year ending March 2024, supported by resilient investment prospects.
Fitch Ratings said that India’s rating reflects strengths from a robust growth outlook compared with peers and resilient external finances, which have supported India in navigating the large external shocks over the past year. However, these are offset by India’s weak public finances, illustrated by high deficits and debt relative to peers, as well as lagging structural indicators, including World Bank governance indicators and GDP per capita.
The global rating agency forecast that headwinds from elevated inflation, high interest rates, and subdued global demand, along with fading pandemic-induced pent-up demand, will slow growth from their FY23 estimate of 7% before rebounding to 6.7% by FY25. Fitch Ratings expects India’s growth prospects to benefit from the government’s focus on infrastructure development and improving the business environment. However, structural impediments to growth remain, including weak governance and regulatory effectiveness, rigid labour laws, and a weak banking sector.
Fitch Ratings’ affirmation of India’s sovereign rating comes as the country continues to grapple with the economic fallout of the COVID-19 pandemic. While India’s economy has shown signs of recovery in recent months, it remains well below pre-pandemic levels. The Indian government has taken several measures to boost economic growth, including the recent announcement of a $1.4 trillion infrastructure spending plan over the next five years.
Despite the challenges facing the Indian economy, Fitch Ratings sees significant potential for growth in the coming years. The rating agency highlighted India’s strong demographic profile, with a large and young population, as a key driver of growth. In addition, Fitch Ratings expects the government’s focus on infrastructure development and improving the business environment to support long-term growth prospects.
However, these are offset by India’s weak public finances, illustrated by high deficits and debt relative to peers, as well as lagging structural indicators.
The affirmation of India’s sovereign rating by Fitch Ratings is likely to be welcomed by policymakers and investors alike. A higher credit rating can lower borrowing costs for the government and corporations and improve investor confidence. However, the agency’s warning about India’s weak public finances underscores the need for the government to take further measures to address the country’s fiscal challenges.
The Indian government has already taken steps to address the issue, including announcing a series of measures to boost revenue and reduce spending. However, more needs to be done to bring down the country’s fiscal deficit, which remains high by international standards.
Overall, Fitch Ratings’ affirmation of India’s sovereign rating with a stable outlook is a positive development for the country’s economy. While there are challenges to overcome, India’s strong growth potential and resilient external finances provide a solid foundation for long-term growth. With the right policies and reforms, India can continue to attract investment and create new opportunities for its citizens in the years ahead.
Fitch Ratings expects India’s growth prospects to benefit from the government’s focus on infrastructure development and improving the business environment. Despite the challenges facing the Indian economy, Fitch Ratings sees significant potential for growth in the coming years. The affirmation of India’s sovereign rating by Fitch Ratings is likely to be welcomed by policymakers and investors alike, but underscores the need for the government to take further measures to address the country’s fiscal challenges.
