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Monday, May 20, 2024

Fitch affirms India sovereign rating at ‘BBB-‘ with stable outlook

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New Delhi: Global rating firm Fitch has affirmed India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘ with a stable outlook.

Fitch 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.

“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,” it pointed out in a media release.

Fitch said that strong growth potential is a key supporting factor for the sovereign rating.

It further said that growth prospects have brightened as the private sector appears poised for stronger investment growth following the improvement of corporate and bank balance sheets in the past few years, supported by the government’s infrastructure drive.

The rating firm, however, pointed out that risks remain given low labour force participation rates and an uneven reform implementation record.

Fitch has projected India to grow at 6% in the fiscal year ending March 2024 (FY24) supported by resilient investment prospects.

“Still, headwinds from elevated inflation, high interest rates and subdued global demand, along with fading pandemic-induced pent-up demand, will slow growth from our FY23 estimate of 7.0% before rebounding to 6.7% by FY25,” it said.

Fitch noted that sustained improvements in asset quality and profitability have led to a strengthening of bank balance sheets on the back of the economic recovery.

It has projected headline inflation to decline but expects it to remain near the upper end of the Reserve Bank of India’s 2%-6% target band, averaging 5.8% in FY24 from 6.7% last year.

“Core inflation pressure appears to be abating, falling to 5.7% in March, its lowest since July 2021,” it said.

The rating agency highlighted India’s general government debt which remains elevated and stated that high government interest payment/revenue ratio of around 27% in FY23 is a growing structural fiscal weakness.

“On the other hand, India’s public finance risks are mitigated in part by limited reliance on external financing,” it added.

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