Fitch Ratings Revises Indian Outlook Rating From Negative to Stable

Fitch changed its outlook on India from negative to stable due to the country's strong economic recovery.

Highlights

  • Fitch Ratings has changed the outlook on India's sovereign rating from 'negative' to'stable.'
  • However, due to the inflationary impact of global commodity prices, it has lowered India's GDP prediction for this year to 7.8%.
  • Previously, the government forecasted 8.5% increase for fiscal year 2023.

Fitch Ratings
Fitch Ratings has changed the outlook on India's sovereign rating from 'negative' to'stable.'

Fitch changed its outlook on India from negative to stable due to the country's strong economic recovery. Despite near-term challenges from the global commodities price shock, the study issued today noted that banking sector weakness is diminishing, which supported their projection adjustment.

However, due to the inflationary impact of global commodity prices, it has lowered India's GDP prediction for this year to 7.8%. Previously, the government forecasted 8.5% increase for fiscal year 2023.

The debt-to-GDP ratio was reduced in the near term due to high nominal GDP growth. However, based on its assumption of sustained big deficits, the agency warned that public finances remain a credit concern, with the debt ratio generally stabilising.

“The rating also balances India's external resilience from solid foreign-exchange reserve buffers against some lagging structural indicators,” Fitch reported.

The agency also noted that India's gross domestic product (GDP) – the monetary worth of a nation's final products and services generated — increased by 8.7% in FY22, indicating that the economy had recovered well from the shocks of Covid-19.

The government's push for improved infrastructure, agenda reform, and lowering pressure on the financial services industry, according to Fitch Ratings, would help India's economy develop at a rate of 7% between FY24 and FY27.

“India's strong medium-term growth outlook relative to peers is a key supporting factor for the rating and will sustain a gradual improvement in credit metrics,” the report further added.

It did, however, warn about the unequal character of economic recovery and the hazards of infrastructure expenditure and reform implementation.

According to the research, India's budget deficit might decrease from 10.7% of GDP in FY22 to 10.5% of GDP in FY23. Fitch predicts India's budget deficit to shrink to 8.9% of GDP in the next three years, but there will be hurdles.

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