22 Dec Fitch retains India rating at BBB
Fitch Retains India rating at BBB
The topic talks about how the fitch rating of India at BBB impacts the Indian Economy and social development.
For Prelims: Economic and social development, credit rating agencies
For Mains: GS-3, Economic and social development
About the fitch rating India at BBB:
Fitch Ratings is a credit rating company with offices in New York and London that evaluates the financial standing of businesses so that investors can identify investments that will produce reliable returns and steer clear of risky risks. Fitch evaluates debt using quantitative and qualitative analysis, looking at the company’s cash flow, gross debt, and variety of investors, among other things.
On December 2022, Fitch Ratings maintained India’s rating at “BBB-” with a stable outlook, although anticipating a slight “fiscal slippage” from the central government’s fiscal deficit target of 6.4% to GDP to 6.6% of GDP this year due to higher food and fertilizer subsidies.
These are nevertheless countered by India’s weak public finances, which are demonstrated by high deficits and debt relative to peers, as well as lagging structural metrics, according to the report. These include GDP per capita and governance indices from the World Bank.
Investment grade ratings of “BBB” mean that there is currently little expectation of default risk and that the ability to meet financial obligations is seen as adequate. However, unfavorable business or economic conditions are more likely to compromise this ability.
According to the report, India’s still robust foreign finances have helped the country get through the last year’s significant external shocks.
Key findings of the pitch rating India
- According to Fitch, our prediction for GDP growth of 7.0% in the fiscal year ending March 2023 is supported by continuing consumption and investment recovery (FY23).
- India’s small reliance on external demand in 2023 helps to shield it from the bleak global picture.
- The report projected growth to be slowed to 6.2% in FY24 (‘BBB’ median: 2.0%) due to decreased exports, more uncertainty, and rising interest rates.
- As pent-up demand diminishes, we also anticipate a slowing in consumption growth, according to Fitch.
- According to Fitch, a major element supporting the grade is the positive medium-term economic projection for India.
- A gradual rise in investment is likely to be made possible in the upcoming years by a noticeable improvement in corporate and bank balance sheets, which were already under pressure before the pandemic.
- “These prospects are strengthened by the government’s ongoing infrastructure program and reform agenda, as well as initiatives to draw in more FDI.
- However, given trends in labor force participation, the slow recovery of the rural economy, and the mixed success of reform implementation, concerns persist.
- On the strength of the robust and long-lasting economic recovery, financial sector risks continue to decrease.
- Rapid credit expansion is expected to continue, supported by a strong credit demand and rising risk appetite, so long as capitalization is well managed, according to Fitch.
- According to the report, high deposit funding helps to partially temper the normalization of domestic liquidity conditions.
- The general government deficit has decreased from its all-time high of 13.5% of GDP (excluding disinvestment) but is still expected to be significant in comparison to other countries.
- It anticipated a small decrease in the deficit from 9.8 percent of GDP in FY22 to 9.6 percent of GDP in FY23 (‘BBB’ median: 4.1 percent).
- Due to higher food and fertilizer subsidies, the report anticipates a modest fiscal slippage for the central government in FY23, with a deficit of 6.6% of GDP (including disinvestment) compared to the budget target of 6.4%, but revenue growth and expenditure switching will be able to offset the fiscal impact of the measures while still allowing capital spending to remain a top priority.
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