Fitch says India continues to exhibit some structural weaknesses
Fitch says India continues to exhibit some structural weaknesses

Fitch affirms India's rating at BBB- with stable outlook

ANI | Updated: Apr 04, 2019 17:32 IST

New Delhi [India], Apr 4 (ANI): Fitch Ratings kept India’s sovereign rating unchanged on Thursday at the lowest investment grade of BBB- with a stable outlook.
Significantly, it highlighted opinion polls indicating that the next government will likely have a smaller majority in the Lok Sabha than the current government, and it might find it more difficult to garner support for major reforms such as the Goods and Services Tax.
"India's ratings balance a strong medium-term growth outlook and relative external resilience stemming from strong foreign reserve buffers, against high public debt, a weak financial sector and some lagging structural factors," according to an official statement.
Fitch expects growth of 6.8 per cent in the fiscal year ending March 2020 (FY 20) and 7.1 per cent in FY 21 supported by accommodative monetary policy, easing of bank regulations and government spending.
A deceleration in recent quarters has mainly been domestically driven, from weak manufacturing performance and low food inflation weighing on farmers' incomes. Limited available indicators also point to a rise in unemployment.
According to recently revised official GDP data, growth averaged 7.5 per cent in the five years up to and including FY19, which is more than twice as fast as the historical 'BBB' peer median of 3.6 per cent.
Fitch said easing of foreign direct investment (FDI) regulations and a reduction in red tape appear to have reduced transaction costs, but difficulties in doing business in India continue to linger, coinciding with lacklustre FDI inflows.
A weak fiscal position continues to constrain India's sovereign ratings. In this regard, the next government's medium-term fiscal policy will be of particular importance from a rating perspective.
Gross FDI inflows into India of 1.4 per cent of GDP in the year through third quarter of FY 18 were below the 1.7 per cent of GDP four years earlier.
"India continues to exhibit some structural weaknesses relative to peers and is less developed on a number of metrics," said Fitch.
Governance standards remain weak, as illustrated by a low score for the World Bank's governance indicator (47th percentile versus the 'BBB' median of 59th percentile).
India's ranking on the United Nations Human Development Index (32nd percentile versus the 'BBB' median of 67th percentile) also indicates relatively low basic human development, it said.
(ANI)

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