Fitch retains ranking with damaging outlook on ‘higher debt levels’

Fitch Ratings on Tuesday affirmed India’s sovereign ranking at ‘BBB-’ with a damaging outlook, arguing that the ranking motion balances a still-strong medium-term progress outlook and exterior resilience towards excessive public debt and a weak monetary sector.
Even as greater debt ranges pose constraints, India’s robust medium-term progress outlook relative to friends is a key supporting issue for the ranking, it mentioned.
“The medium-term debt trajectory remains core to our rating assessment, as higher debt levels constrain the government’s ability to respond to shocks and could lead to a crowding out of financing for the private sector, in our view. General government debt rose to 89.6% of GDP in FY21, the highest of ‘BBB’ emerging-market sovereigns. We forecast the ratio to decline slightly to 89.0%, still well above the 60.3% ‘BBB’ median in 2021,” the ranking company mentioned in its evaluation.
Risks related to India’s excessive public debt are partly offset by the flexibility to finance its deficits domestically, which is a energy relative to most ‘BBB’ friends, as international foreign money authorities debt includes solely 6 per cent of complete debt towards BBB friends median fee of 33 per cent, it mentioned. The authorities has additionally made headway on the nation’s potential inclusion in world bond indices, which might be constructive from a credit score perspective, as it might open up various sources of financing.

“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 mentioned.
Last month, Moody’s Investors Service had affirmed India’s sovereign ranking and upgraded its outlook to ‘stable’, from ‘negative’ citing receding draw back dangers to financial system and monetary system.