Fitch Rates India Negative - Pranab says, 'it's all old data'
FITCH Ratings has revised India's Outlook to Negative from Stable. Its Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) have been affirmed at 'BBB-' and Short-Term Foreign Currency at 'F3'. India's Country Ceiling is also affirmed at 'BBB-'.
The Finance Minister and President - in - waiting, Pranab Mukherjee says the ratings are based on older data. Fitch however had some good words about India: "strong economic and credit fundamentals," "diversified economy," "high domestic savings," very low "net external debt," "high foreign exchange reserves," and that "underlying drivers of the last decade of rapid economic growth remain in place - a fast growing pool of educated workers and an innovative private services sector." Pranab Da welcomes these observations, but the negative rating is because of older data.
Fitch also adds,
India faces an awkward combination of slowing growth and still-elevated inflation. Real GDP grew just 6.5% yoy in FY 2011-12 (end-March 2012), down from an 8.4% rise in FY 2010-11. India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms.
India's public finances are a key rating weakness compared with other 'BBB'-rated sovereigns, which constrains scope for fiscal policy flexibility. Fitch estimated general government debt stood at 66% of GDP at end-FY 2011-12, against the 'BBB' median of 39%. Moreover, India's government revenue intake is low at 19.4% of GDP. The central government fiscal deficit climbed to 5.8% of GDP in FY 2011-12, against a target of 4.6%, largely reflecting an overshoot in subsidy spending. The government has repeatedly delayed reforms to the tax and subsidy systems. The confluence of weaker economic growth and a large subsidy bill means India will likely miss its 5.1% of GDP deficit target for FY 2012-13; Fitch expects it to be 5.6%-5.9% of GDP. General elections due in early 2014 could see politically driven pressure to loosen fiscal policy, which could further weaken India's public finances relative to peers.