India is one of the fastest-growing sovereigns globally but its sovereign rating remains unchanged at BBB. Fitch Ratings highlighted a stable outlook, on robust growth and resilient external finances.
It affirmed India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at BBB with a Stable Outlook. Fitch Ratings said strong growth potential is a key supporting factor for the sovereign rating. The American credit rating agency forecasts India to be one of the fastest-growing sovereigns globally clocking 6 per cent growth in the current fiscal April 2023 – March 2024, supported by resilient investment prospects. Fitch Ratings estimates growth in the 2022-23 fiscal at 7 per cent and 6.7 per cent in 2024-25.
The agency stated that India’s rating reflects strengths from a robust growth outlook compared with peers and resilient external finances, which have supported India in navigating the large external shocks over the past year. The offset by India’s weak public finances is illustrated by high deficits and debt relative to peers. Moreover, there are lagging structural indicators, including World Bank governance indicators and GDP per capita.
Fitch also said that India will face headwinds from elevated inflation, high-interest rates and subdued global demand, with fading pandemic-induced pent-up demand. It outlined that growth prospects have brightened as the private sector appears poised for stronger investment growth following the improvement of corporate and bank balance sheets in the past few years, supported by the government’s infrastructure drive.
But risks remain due to low labour force participation rates and an uneven reform implementation record. Fitch said India’s largest domestic market makes it an attractive destination for foreign firms. However, it’s unclear whether India will be able to realize sufficient reforms to allow the economy to benefit substantially from opportunities offered by the deeper integration of global manufacturing supply chains.
The agency said service sector exports are likely to remain a bright spot and banks appear well-positioned to support sustained credit growth if capitalization is well managed. It believes inflation will remain near the upper end of the Reserve Bank’s 2 per cent – 6 per cent target band, averaging 5.8 per cent this fiscal against 6.7 per cent last year.