According to ‘Fitch’, India’s growth prospects have brightened as the private sector appears poised for strong investment growth. Picture for representation purpose only. , Photo Credit: Reuters
fox fur Ratings has downgraded its 2023-24 GDP Growth Projections for India The economy is expected to rebound to 6.7% in 2024-25 from 6.9% estimated earlier, citing higher inflation and interest rates as well as a slowdown in global demand, from 6.2% to 6%.
Read also: World Bank cuts India’s growth forecast to 6.3%, needs to make labor market more inclusive
rating firm has reaffirmed India’s long-term foreign currency issuer default rating at ‘BBB-‘ with a stable outlook. A ‘BBB’ issuer default rating indicates that default risk expectations are currently low and payment capacity is considered sufficient to meet financial commitments, but adverse business or economic conditions have a high potential to reduce this capacity. Is.
While India will be one of the fastest growing sovereigns rated by Fitch, buoyed by “resilient investment prospects”, the firm said growth this year will be slower than the 7% expected in 2022-23, as domestic demand remains subdued. Driven by growth in The pandemic will fade with faltering global demand.
“We anticipate a decline in headline inflation, but remain near the upper end of the Reserve Bank of India’s 2%-6% target band, which averaged 5.8% in FY24 from 6.7% last year. Core inflation pressures appear to be easing, falling to 5.7% in March, the lowest since July 2021.
Read also: Moody’s cuts India’s growth forecast to 6.8%
With corporate and bank balance sheets improving over the past few years, the private sector appears poised for strong investment growth, with prospects for growth bright. However, Fitch said risks remain due to the country’s low labor force participation rate and uneven reform implementation record.
“India’s large domestic market makes it an attractive destination for foreign firms. However, it is unclear whether India will be able to realize sufficient reforms to allow it to profit substantially from the opportunities offered by deeper integration into global manufacturing supply chains, including the China+1 corporate strategy that encourages diversification across investment destinations,” the rating agency pointed out.
current account deficit
Fitch cut its 2022-23 current account deficit projection for India to 2.3% of GDP from 3.3% in December 2020, and is expected to narrow the deficit to 1.9% this year. “The recovery is driven by stronger services exports and faster remittances, combined with a glut of goods from falling oil prices,” it argued.
Editorial | Development Mathematics: On India’s Development Prospects
Fitch said India’s ratings reflect strength from a strong growth outlook compared to peers and resilient external finances, which have supported India in weathering major external shocks over the past year. However, it added that these strengths have been offset by weak public finances, as evidenced by high deficits and debt relative to peers, as well as lagging structural indicators including World Bank governance indicators and GDP per capita. .
While Fitch said it expects the central government to meet its fiscal deficit target of 5.9% of GDP in 2023-24 from last year’s 6.4%, states’ deficits are projected to be around 20% of GDP in 2022-23. It is likely to increase from 2.7% to 2.8%. Gross Domestic Product. “We expect the general government deficit (excluding disinvestment) to be limited to a still higher 8.8% of GDP in 2023-24 from 9.2% in 2022-23,” it said.
In the medium term, the ratings firm said it would be challenging for the Center to meet the fiscal deficit target of 4.5% of GDP by 2025-26 as it would require “accelerated consolidation” of 0.7 percentage points annually over the next two years. Is. For context, the deficit is expected to shrink by only 0.3 and 0.5 percentage points by 2022-23 and 2023-24, respectively.
“Future deficit reduction is likely to come primarily from trimming spending, in our view,” it said, adding that India’s general government debt is set to remain at 82.8% of GDP in 2022-23 and 1.5% of GDP in 2022-23. There is a survival probability of about 83%. 2027-28. Fitch Ratings concluded, “If India experiences further economic and fiscal shocks in the future, the lack of sustained debt reduction is likely to increase the risk to the rating.”