BackFitch affirms India’s sovereign rating on robust growth outlook
India’s large domestic market and strong growth potential make it an appealing destination for foreign firms, but weak public finances remain a concern
PremiumNew Delhi: Fitch Ratings has reaffirmed India’s long-term foreign-currency issuer default rating (IDR) at ‘BBB-’ with a stable outlook, citing the country’s robust growth prospects and resilient external finances. India’s large domestic market and strong growth potential make it an appealing destination for foreign firms, but weak public finances remain a concern, the rating agency said.
It forecast that India will be among the fastest-growing Fitch-rated sovereigns globally at 6% in the fiscal year ending March 2024 (FY24), supported by resilient investment prospects. However, headwinds from elevated inflation, high interest rates, and subdued global demand, along with fading pandemic-induced pent-up demand, are expected to slow growth from the FY23 estimate of 7.0% before rebounding to 6.7% by FY25.
Fitch highlighted India’s improving financial sector, with sustained improvements in asset quality and profitability leading to a strengthening of bank balance sheets on the back of the economic recovery.
The agency expects India’s general government deficit (excluding divestments) to narrow to a still-high 8.8% of GDP in FY24 (2023 BBB median: 3.6%) from 9.2% in FY23. The central government is expected to meet its budget’s planned reduction in the deficit to 5.9% of GDP in FY24 from 6.4% in FY23, while aggregate state deficits are forecast to rise slightly to 2.8% of GDP in FY24.
Another challenge, according to Fitch, is the high public debt burden. “India’s general government debt remains elevated at Fitch’s estimate of 82.8% in FY23 relative to the ‘BBB’ median of 55.4%," Fitch said. Debt is forecast to remain broadly stable at around 83% of GDP in FY28.
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