Fitch upgrades India’s outlook to stable citing ‘rapid’ recovery

• Credit rating firm pares FY23 growth forecast to 7.8%, sees inflation at 6.9%

Stable from Negative rating

• Fitch Ratings raised India’s rating outlook to ‘stable’ from ‘negative’.
  • Citing fading downside risks to medium-term growth on account of rapid economic recovery and easing of weaknesses in the financial sector.
• It lowered GDP growth forecast for 2022-23 from 8.5% projected in March to 7.8% due to the impact of inflation.
• Despite near-term headwinds from the global commodity price shock
  • Robust growth for India but the country’s public finances remain a credit weakness with the debt ratio broadly stabilising.
• The firm affirmed India’s long-term foreign currency issuer rating at ‘BBB-’ while revising the outlook.
  • On account of adequate buffer of forex reserve.
• A BBB rating reflects low expectations of default risk with adequate capacity for payment of financial commitments.
• While high nominal GDP growth has facilitated a near-term reduction in India’s debt-to-GDP ratio.
• The higher subsidies this year and the excise duty cuts on fuel to offset the surge in consumer prices would cost about 0.8% of GDP.
• This would push the fiscal deficit to 6.8% from the Budget target of 6.4%, despite robust revenues.

Prelims Takeaway

• Credit agencies - Indian And International