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Fitch warns of India rating downgrade

Fitch warns of India rating downgrade

Fiscal slippages in the run-up to 2014 general elections and declining growth could result in India's rating downgraded to below the investment level, global agency Fitch warned on Monday, pegging GDP growth for the current financial year to 6 per cent.

Fiscal slippages in the run-up to 2014 general elections and declining growth could result in India's rating downgraded to below the investment level, global agency Fitch warned on Monday, pegging GDP growth for the current financial year to 6 per cent.

"Policy slippage and/or mounting evidence of a structural decline in the trend growth rate, such as protracted relatively weak economic data, could cause the ratings to be downgraded," Fitch said in a statement.

A loosening in fiscal policy in view of 2014 general elections, it added, "could further weaken India's public finances and put pressure on ratings".

According to the credit rating agency, recent reform proposals, while potentially growth-supportive, need time to work and face political risks to their implementation.

"But political and implementation risk remains considerable. Several proposals still require legislative approval, and policy reversals cannot be ruled out. The approach of general elections in 2014 mean there is little time to fully enact reform. These risks are reflected in the Negative Outlook," it said.

Fitch said however that an improved investment climate which supports greater infrastructure investment, and a sharp sustained decline in inflation, would support the current 'BBB -' rating, which is a notch above the investment grade.

Referring to India's economic growth, Fitch said, "We expect the economic recovery to be shallow. We forecast real GDP growth to fall to 6 per cent in FY13 (year to March 2013) from 6.5 per cent in FY12..." it said.

The agency had earlier pegged the GDP for the ongoing financial year at 6.5 per cent.

India's GDP growth slumped to 5.3 per cent in the second quarter of the current fiscal, from 6.7 per cent year-on-year.