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Fitch Ratings on Friday, 10 June, upped its outlook on India's sovereign rating to 'stable' from 'negative' after two years, citing diminishing downside risks to medium-term growth on rapid economic recovery.
Fitch Ratings kept the rating unchanged at 'BBB.'
The agency, however, cut the economic growth forecast to 7.8 percent for the current fiscal (April 2022 to March 2023) from the 8.5 percent prediction it made in March due to the inflationary impact of the global commodity price shock.
"India's economy continues to see a solid recovery from the COVID-19 pandemic shock," Fitch said.
The Indian economy grew 8.7 percent in the last fiscal, and the country's central bank RBI expects growth to be 7.2 percent this fiscal.
Stressing that India's medium-term growth prospects remain solid, Fitch said India's strong growth outlook relative to peers is a key supporting factor for the rating, and will sustain a gradual improvement in credit metrics.
The agency in June 2020 revised the outlook for India to 'negative' from 'stable' on grounds that the coronavirus pandemic had significantly weakened the country's growth outlook and exposed the challenges associated with a high public debt burden.
India enjoyed a 'BBB' rating since the upgrade in August 2006 but the outlook has oscillated between stable and negative.
The agency said achieving the 4.5 percent fiscal deficit target by 2025-26 could prove challenging, as revenue/GDP has already returned to pre-pandemic levels.
"High-interest payments/revenue of 26 percent of GDP in FY22 constrains fiscal flexibility, particularly in the context of rising sovereign bond yields," it added.
Fitch forecast the debt-to-GDP ratio to drop to 83 percent in the current fiscal from a peak of 87.6 percent in 2020-21, but it remains high compared to the 56 percent peer median.
(published in an arrangement with PTI)
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