Fitch Ratings revises outlook for India to stable from negative

The ratings agency noted last week that the "downside risks to medium-term growth have diminished due to India's rapid economic recovery and easing financial sector weaknesses."

This is despite the near-term headwinds from the global commodity price shock, Fitch Ratings said on June 10.

"We expect robust growth relative to peers to support credit metrics in line with the current rating," the ratings agency added.

Fitch has projected India's FY23 growth at 7.8 percent compared with its median forecast of 3.4 percent for countries it rates BBB.

In June 2020, Fitch had downgraded the outlook for India to negative after the imposition of the nationwide lockdown to contain the spread of coronavirus.

After two consecutive quarters of year-on-year decline in GDP, India's economy has rebounded compared to the lows of previous quarters.

While the Reserve Bank has forecasted that growth will decline to 7.2 percent in FY23, Fitch's forecast is 60 basis points higher than the central bank's.

Fitch said India's growth outlook, in the medium-term, was "strong" compared to its peers.

It expects growth of around 7 percent between FY24 and FY27.

On debt issue, Fitch said India's debt to GDP remains high despite some improvement.

"We forecast the debt-to-GDP ratio to drop to 83.0 percent in FY23 from a peak of 87.6 percent in FY21, but it remains high compared to the 56 percent peer median. Beyond FY23, however, our expectations of only a modest narrowing of the fiscal deficit and rising sovereign borrowing costs will push the debt ratio up slightly to around 84.0 percent by FY27, even under an assumption of nominal GDP growth of around 10.5 percent," Fitch said.

Fitch expressed doubt over the fiscal deficit target of 4.5 percent of GDP set by the Centre for FY23, noting that the 2022 budget did not mention clearly how it will be achieved.

"In our view, achieving this target could prove challenging, particularly as revenue/GDP has already returned to pre-pandemic levels," Fitch said.

On monetary policy, the ratings agency expects RBI to raise the repo rate to 6.1 percent by FY24 to tackle inflation.

Reacting to Fitch's revised outlook for India, Commerce and Industry Minister Piyush Goyal said it is an ''acknowledgment of Modi government's reforms agenda that has placed the economy on a strong footing, cushioning it from external variables and laying the roadmap for steady growth''.