Fitch keeps India’s credit rating unchanged for 12th year in a row

The government has been pushing Fitch Ratings for a favourable outcome after the country got its first sovereign rating upgrade by Moody’s Investors in November 2017 after 13 years. India’s sovereign rating was last upgraded by Fitch from BB+ to BBB- with a stable outlook on August 1, 2006.

The government has cited a debt of around 70 per cent of the GDP, difficulty in meeting the fiscal deficit target of 3.3 per cent of the GDP in the current financial year (2018-2019) due to lower revenues, including from GST in first half, and expenditures being difficult to control in the run-up to general elections as the main reasons for the weak fiscal position.

“The Indian economy continues to exhibit some structural weaknesses relative to peers and is less developed on a number of metrics. Governance standards continue to be weak, as illustrated by a low score for the World Bank governance indicator (47th percentile versus the ‘BBB’ median of 59th percentile). India’s ranking on the United Nations Human Development Index (31st percentile versus the ‘BBB’ median of 68th percentile) also indicates relatively low basic human development,” it said in a statement.

The government said that a “positive-rating action” could be triggered by a reduction in general government debt over the medium term and higher sustained investment and growth rates without the creation of macro-imbalances. It also said that an opposite rating action could be triggered by a rise in debt burden of the sovereign and loose macroeconomic policy settings that can lead to a return of persistently high inflation and widen current-account deficits.

Fitch had changed the outlook to negative in 2012 and then again to stable the following year, though the rating was kept unchanged at the lowest investment grade after the last rating upgrade in 2006.

Defaults by Infrastructure Leasing & Financial Services and some public-sector banks were listed by Fitch to highlight risks in a sector that provided a third of the credit growth in recent years.

Real GDP growth in the current financial year ending March 2019 (2018-19) rose to 7.8 per cent, up from 6.7 per cent in the previous FY2017-18. However, the forecast is subject to risks from tightening financial conditions, weak financial sector balance sheets and high international oil prices. A government statement said, “Fitch forecasts growth to decelerate to a still-strong 7.3 per cent in both FY2019-20 and FY2020-21 for the same reasons”.

The Fitch forecast for the current year growth is an upgrade over 7.3 per cent predicted in April but the next year fiscal growth prediction is a drop from the previous estimate of 7.5 per cent.

Lingering difficulties in doing business in India, including starting a business and enforcing contracts still continue to plague the Indian business ecosystem, even after the country has improved drastically in the World Bank’s Ease of Doing Business rankings, rising to the 77th position out of 190 countries, jumping up by 53 positions in two years.

(With inputs from PTI)