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Fitch Revises India’s Sovereign Rating Outlook To Stable

Fitch Ratings has revised its outlook on India’s sovereign rating to ‘stable’ from ‘negative’, citing diminished risks to medium-term growth and a healthier financial sector. India’s sovereign rating remains unchanged at BBB-.

“The Outlook revision reflects our view that downside risks to medium-term growth have diminished due to India’s rapid economic recovery and easing financial sector weaknesses, despite near-term headwinds from the global commodity price shock,” said the rating agency in a note on Friday. “We expect robust growth relative to peers to support credit metrics in line with the current rating.”

Fitch sees the Indian economy grow 7.8% in FY23 compared with the 3.4% median growth across other countries rated ‘BBB’. The rating agency had earlier expected growth of 8.5% but sees the global commodity price shock dampen the growth momentum.

The agency forecasts growth of around 7% between FY24 and FY27 helped by the government’s infrastructure push, reform agenda and easing pressures in the financial sector. Risks to this forecast could emerge from implementation risks for infrastructure spending and reforms, it added.

Fitch added that conditions in the financial sector were a key growth impediment before the pandemic, but have improved in recent years. This should facilitate better credit allocation and investment in the medium term.

While growth is likely to stablise, Fitch Ratings sees fiscal pressures persist.

“We expect the general government fiscal deficit to narrow at a modest pace over the next several years, reaching 8.9% of GDP by FY25,” it said.

India’s debt-to-GDP ratio, however, will benefit from a sharp acceleration in nominal GDP growth. “We forecast the debt-to-GDP ratio to drop to 83.0% in FY23 from a peak of 87.6% in FY21, but it remains high compared to the 56% peer median.”

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