Highest Debt Among Peers Keeps India Junk-Rating Risk Alive

(Bloomberg) -- India's record borrowing plan prevents Fitch Ratings from reverting to a stable outlook from negative, keeping alive the possibility of a sovereign downgrade to so-called junk status over the coming year.

The nation has the highest general government debt ratio among peers rated BBB-, Fitch said in a statement a day after India pledged to double down on debt-fueled spending. Active steps to reduce debt is key to revising the outlook, Fitch said.

India Plans Record Borrowing to Fund Modi's Growth Ambitions

“We will be assessing whether the capex drive's growth impact is sufficient to offset the higher than expected deficits,” said Jeremy Zook, director and primary sovereign analyst for India at Fitch. “From a ratings perspective, we see India as having limited fiscal space.”

What Fitch liked:	What it didn't:
The economic and revenue assumptions underpinning the budget are largely credible	Our expectation of modest fiscal outperformance in FY22 appears unlikely to materialize
The target for disinvestment is more achievable than in last year's budget	Deficits at the state level could pressure general government fiscal deficit
The government also appears to be following through on its efforts to improve budget transparency by including previously off-budget spending	Beyond capex, the budget was short on major growth-enhancing structural reforms

Fitch retained its negative outlook on India's sovereign rating in November, reflecting concern the country will find it challenging to cut its high public debt.