Fitch affirms India’s rating at ‘BBB-’ with a stable outlook

A ‘BBB’ rating indicates that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. The rating agency said India’s 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.

India will be one of the fastest-growing Fitch-rated sovereigns globally at 6 per cent in the fiscal 2024, supported by resilient investment prospects, it said.

“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 per cent before rebounding to 6.7 per cent by FY25,” the agency noted.

The sustained improvements in asset quality and profitability have led to a strengthening of bank balance sheets on the back of the economic recovery, which has created headroom to absorb risks as pandemic-related forbearance measures continue to unwind in FY24, it said.

The agency expects headline inflation to decline, but remain near the upper end of the Reserve Bank of India’s 2-6 per cent target band, averaging 5.8 per cent in FY24 from 6.7 per cent last year. The RBI has projected CPI inflation to be at 5.2 per cent for FY24.

Fitch said core inflation pressure appears to be abating, falling to 5.7 per cent in March, its lowest since July 2021. It expects the general government deficit (excluding divestments) to narrow to a still-high 8.8 per cent of GDP in FY24 from 9.2 per cent in FY23.

The rating agency has cut its estimate of the FY23 current account deficit to 2.3 per cent of GDP from 3.3 per cent in its December review. For FY24, it forecast a current account deficit of 1.9 per cent.