Rating agency Fitch today said it expects India's growth to slow to about 5 per cent in the current fiscal due to recession in advanced economies and the reduction in capital flows.
"The agency forecasts growth will slow to about 5 per cent in FY10 (2009-10), affected by the recession in advanced economies and the sharp reduction in capital flows to emerging markets," Fitch said in a note.
Fitch said the new government will face major challenges in balancing the need for short-term stimulus measures to counter slowdown and re-establishing a sustainable medium-term path for India's public finances.
The results of the elections will be announced on May 16. The last two governments have been coalitions, led by the BJP (1999-2004) and the Congress (2004-2009). The outcome of the current elections remains uncertain, Fitch said.
"... The recent deterioration in India's fiscal position accentuates underlying structural weaknesses in public finances that, if unaddressed, could undermine sovereign creditworthiness," said James McCormack, Head of Asia Sovereigns, Fitch.
Estimating 6.5 per cent growth in 2008-09, it said there were two supplementary budgets in the last fiscal, resulting in a "dramatic increase" in the consolidated general government deficit.
"Last year's fiscal outturn marked the definitive end of a six-year trend decline in the deficit based on strong revenue growth, but very little progress in curtailing expenditure," Fitch said.
The agency opined the new administration is likely to provide additional fiscal stimulus, resulting in a general government deficit of more than 10 per cent of GDP for the second consecutive year, and an increase in the debt/GDP ratio to a record-high 82 per cent.
"India's long-term foreign currency and local currency Issuer Default Ratings (IDRs) are 'BBB-'. The outlook on the foreign currency IDR is 'stable', while the outlook on the local currency IDR is 'negative'," the agency noted.
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