Fitch revises India’s outlook to stable on economic recovery

‘India’s economy continues to see a solid recovery from the Covid-19 pandemic shock.’
Image: Bloomberg

Fitch Ratings has revised its outlook for India to stable from negative, citing diminishing downside risks to medium-term growth.

“India’s economy continues to see a solid recovery from the Covid-19 pandemic shock,” Fitch said in a statement Friday, adding that conditions in the financial sector, that were a key growth impediment before the pandemic, have improved in recent years.

The company, however, reaffirmed its BBB- rating, which is the lowest investment grade as it forecasts GDP growth to slow to 7.8% in the current financial year that started April 1. That’s a downward revision from its 8.5% forecast in March as inflationary impact of high commodity prices dampens some of the positive growth momentum. It sees India’s growth at around 7% in the next four years.

India’s economy expanded by 8.7% in the fiscal year ended March 2022, the world’s quickest pace, and face headwinds from the ongoing geopolitical tensions in the current fiscal year that started April 1.

“Nevertheless, there are challenges to this forecast, given the uneven nature of the economic recovery and implementation risks for infrastructure spending and reforms,” Fitch said.

The rating agency sees fiscal deficit for fiscal year ending March at 6.8% of gross domestic product, compared with 6.4% announced in the budget. Implementation of a credible medium-term fiscal strategy to bring overall government debt down could lead to positive rating action, it said.

It also expects inflation to remain elevated this year at 6.9%, which is 20 basis points higher than the RBI’s projection, due to the sharp rise in global commodity prices and underlying demand pressures.

We forecast the central bank to continue to withdraw liquidity and raise rates, with the repo rate reaching 6.15% by March 2024, Fitch said.

© 2022 Bloomberg

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