Fitch retains India rating at BBB-, cites robust medium term growth outlook

Fitch Ratings on Tuesday retained its rating for India at ‘BBB-‘ with a stable outlook, even as it expected a modest ‘fiscal slippage’ this year from the central government’s fiscal deficit target of 6.4% to GDP to 6.6%, due to higher food and fertilizer subsidies. 

Despite the slippage, Fitch said it expected India’s general government deficit to fall slightly to 9.6% of GDP in 2022-23, from 9.8% last year. This is lower than the 10.5% of GDP the global rating major had forecast in June 2022, and was ‘largely because State deficits have declined much faster than we anticipated’.

Earlier this month, the rating agency had reiterated India’s GDP growth estimate at 7%, but had lowered its growth projection for 2023-24 to 6.2% from 6.7% predicted earlier. Its latest rating action attributes the reduction in next year’s growth estimate to ‘declining exports, heightened uncertainty and higher interest rates’ as well as a moderation in consumption growth ‘as pent-up demand fades’.

While risks emanating from labour force participation dynamics, the lagging rural sector recovery, and uneven reform implementation record persist, Fitch said its rating is broadly spurred by India’s robust medium-term growth outlook, with improved corporate and bank balance sheets likely to facilitate an ‘acceleration in investment in the coming years’.

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