Fitch slants India’s growth forecast to 7.8%, revises outlook as ‘Stable’

Fitch Ratings upgraded India‘s outlook from Negative to Stable, noting diminishing downside risks to medium-term growth as a result of the country’s strong economic recovery and the easing of financial sector problems. However, due to the impact of inflation on development momentum, the global rating firm has decreased its GDP growth prediction for 2022-23 from 8.5 percent expected in March to 7.8 percent.

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KEY POINTS:

• Despite near-term headwinds from the global commodity price shock, Fitch expects India’s economy to grow at a faster pace than similarly rated peers, but the country’s public finances remain a credit weakness, with the debt ratio broadly stabilising, based on its expectations of persistent large deficits.
• While adjusting the outlook, the firm maintained India’s long-term foreign currency issuer default rating of ‘BBB-,’ adding that this ‘balances India’s external resilience from substantial foreign-exchange reserve buffers against certain lagging structural indicators.’
• A BBB rating indicates low default risk and adequate financial commitment payment capability, while poor business or economic conditions are more likely to erode this capacity.
• While India’s debt-to-GDP ratio has been reduced in the short term due to high nominal GDP growth, Fitch Ratings estimates that greater subsidies and fuel excise tax cuts will cost around 0.8 percent of GDP this year to counteract the rise in consumer prices. This will increase the Centre’s budget deficit to 6.8% of GDP, up from the 6.4 percent objective set in the Budget for 2022-23.
• In the medium term, Fitch Ratings expects India to grow at a rate of around 7% between 2023-24 and 2026-27, supported by the government’s infrastructure push, reform agenda, and easing financial sector pressures. It emphasises that this strong growth outlook is a key driver for its decision, as it will sustain a gradual uptick in credit metrics.

While the Reserve Bank of India (RBI) now anticipates inflation to average 6.7 percent through 2022-23, Fitch predicts it to be higher, at 6.9 percent, compared to the median rate of 4.9 percent for BBB-rated countries, owing to strong increases in global commodity prices and underlying demand pressures.

About Fitch Ratings:

Fitch Ratings Inc. is a credit rating firm based in the United States. It is one of the “Big Three” credit rating organisations, along with Moody’s and Standard & Poor’s. The US Securities and Exchange Commission certified it as one of three nationally recognised statistical rating organisations (NRSRO) in 1975. Fitch Ratings has offices in both New York and London. Following the acquisition of an additional 20% for $2.8 billion on April 12, 2018, Hearst now owns 100% of the company. After expanding its ownership position by 30% on December 12, 2014, in a transaction valued at $1.965 billion, Hearst held 80 percent of the company. Following expansions on an initial acquisition in 2006, Hearst’s previous stock position was 50%.

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