Fitch Ratings on Tuesday said the risks to India's medium-term growth outlook are narrowing with rapid economic recovery from the pandemic and easing financial sector pressures as it kept the sovereign rating unchanged at 'BBB-' -- the lowest investment grade rating-- with a negative outlook.
The rating balances a still-strong medium-term growth outlook and external resilience from solid foreign-reserve buffers, against high public debt, a weak financial sector and some lagging structural issues, it said.
"We forecast robust GDP growth of 8.7 per cent in the fiscal year ending March 2022 (FY22) and 10 per cent in FY23 (ending March 2023), supported by the resilience of India's economy, which has facilitated a swift cyclical recovery from the Delta Covid-19 variant wave in 2Q21," Fitch said while affirming India at 'BBB-'; with a negative outlook.
Fitch forecast growth of around 7 per cent between FY24 (fiscal ending March 2024) and FY26 (fiscal ending March 2026), supported by the government's reform agenda and the closing of the negative output resulting from the pandemic shock.
"The government's production-linked incentive scheme to boost foreign direct investment, labour reform and the creation of a 'bad bank', along with an infrastructure investment drive and the National Monetisation Pipeline, should support the growth outlook if fully implemented. Nevertheless, there are challenges to this outlook, given the uneven nature of the economic recovery and reform implementation risks," Fitch said.
Fitch had in June last year revised the outlook for India to 'negative' from 'stable' on grounds that the coronavirus pandemic had significantly weakened the country's growth outlook and exposed the challenges associated with a high public debt burden.
India enjoyed a 'BBB-' rating since the upgrade in August 2006 but the outlook has oscillated between stable and negative.
In affirming the 'BBB-' rating, Fitch on Tuesday maintained a negative outlook for the rating reflecting "lingering uncertainty around the medium-term debt trajectory, particularly given India's limited fiscal headroom relative to rating peers."
'BBB-' is the lowest investment-grade rating.
"The country's rapid economic recovery from the Covid-19 pandemic and easing financial sector pressures are narrowing risks to the medium-term growth outlook," Fitch said in a statement.
