Fitch has affirmed India’s sovereign rating at ‘BBB-’ with a stable outlook citing a robust medium-term growth outlook and sound external finances. The agency, however, flagged the country’s weak public finances as the “largest constraint” to the rating.
The rating agency revised its growth projection for FY24 to 6.9% from the 6% forecast earlier.
Fitch expects the central government to achieve its fiscal deficit target of 5.9% of gross domestic product in FY24 from 6.4% in FY23 but said the goal to reduce that deficit to 4.5% by fiscal year 2026 will be challenging. “Beyond FY24 there is less certainty on the fiscal path and trade-offs between economic growth and consolidation may become more acute,” Fitch said in a statement.
The agency expects the economy to grow 6.5% in FY25. It has projected inflation to ease to 4.7% by the end of 2024 with a 75 basis points policy rate cut by the RBI in FY25.
It pointed out that India will remain the fastest-growing economy in the next few years as economic momentum proves resilient, projecting 6.5% growth in the coming fiscal.
“Investment is likely to remain a key growth driver, as the government’s capex drive is likely to continue, and private investment should accelerate gradually. Consumption is likely to moderate further in the near term due to reduced household savings buffers,” Fitch said.
The first official estimates released by the government earlier this month pegged the country’s growth at 7.3%, driven by higher investment rate.
Fitch noted that the government’s infrastructure push, along with a strong private investment outlook and favourable dynamics will keep the country’s potential growth at 6.2%.
“The improved health of bank and corporate balance sheets should pave the way for a positive investment cycle. Reforms could support and boost growth, but risks may arise from an uneven implementation record,” it said, adding, “sustaining high levels of capex is likely to remain a key objective to foster GDP growth, but in the absence of further sizable revenue-raising measures, spending cuts are likely to be the key driver for narrowing the deficit”.
The rating agency projected policy continuity post the general elections, as it noted that the ruling party is likely to return to power.
“Polls indicate that the incumbent government led by the BJP … will be re-elected. As a result, we expect policy continuity, with gradual fiscal consolidation and economic reform momentum,” it said.
Source: The Economic Times
