Fitch Ratings has affirmed India's rating at 'BBB-' with a stable outlook.
India's rating reflects strengths from a robust growth outlook compared to peers and still-resilient external finances, which have supported India in navigating the large external shocks during the past year, it said in a press release on Tuesday. These are offset by India's weak public finances, illustrated by high deficits and debt relative to peers, as well as lagging structural indicators, it said.
"Sustained consumption and investment recoveries underpin our GDP growth forecast of 7% in FY23," Fitch Ratings said. India is somewhat insulated from the gloomy global outlook in 2023, given its modest reliance on external demand. "Nevertheless, we expect declining exports, heightened uncertainty and higher interest rates to slow growth to 6.2% in FY24," it said, adding that consumption growth is also set to moderate as pent-up demand fades.
Strong Medium-Term Growth
India's robust medium-term growth outlook is a key supporting factor for the rating, Fitch said. A clear improvement in corporate and bank balance sheets, which were under strain prior to the pandemic, is likely to facilitate a steady acceleration in investment in the coming years. The government's ongoing infrastructure drive and reform agenda, along with efforts to attract greater FDI inflows, supplement these prospects.
Fiscal deficit is expected to fall slightly to 9.6% of GDP in FY23 compared to a 'BBB' median of 4.1%, Fitch said. "For the central government, we expect modest fiscal slippage in FY23 with a deficit of 6.6% of GDP (including disinvestment) relative the 6.4% budget target, due to higher food and fertiliser subsidies, but revenue growth and expenditure switching will contain the measures' fiscal toll, while allowing capital spending to remain a priority," it explained.
Fitch forecasts the central government to set a 6% of fiscal deficit target in its upcoming budget and to retain its 4.5% FY26 target.
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