NEW DELHI: Rating agency Fitch has revised upwards India’s outlook from Negative to Stable even as it maintained the country’s long-term foreign-currency issuer default rating (IDR) at BBB-.The rating agency attributed the outlook revision to diminishing downside risks to medium-term growth prospects due to India’s rapid economic recovery and easing financial sector weaknesses, despite near-term headwinds from the global commodity price shock.
Fitch says high nominal GDP growth has facilitated a near-term cut in the debt-to-GDP ratio, even if public finances remain a credit weakness. It says India’s external resilience from solid foreign-exchange reserve buffers offsets some lagging structural indicators. Fitch forecasts the debt-to-GDP ratio to drop to 83.0% in FY23 from a peak of 87.6% in FY21.
It, however, says the debt-to-GDP ratio remains high compared to the 56% peer median. It has predicted GDP growth in FY23 to be 7.8%, which is much higher than the 3.4% median growth rate among countries rated BBB. Recently, the RBI predicted a 7.2% growth rate in FY23. India grew by 8.7% in the previous financial year.
On Inflation, Fitch believes inflation in India will remain elevated in FY23 at 6.9% (compared to RBI’s estimate of 6.7%), due to the sharp rise in global commodity prices and underlying demand pressures. It feels RBI would continue to increase the repo rate in FY23 till it reaches 6.15%. The country’s central bank on Wednesday raised the policy repo rate by 90 bps to 4.90%.
On financial sector stability, the rating agency said that conditions in the financial sector have improved in recent years, which should facilitate better credit allocation and investment in the medium term.