Recent trends in India’s GDP growth and the fiscal deficit, says ART WOO, director, sovereign ratings, Fitch, support the agency’s recent decision to cut the country’s ratings outlook to negative. He tells Dilasha Seth they’re also assessing other factors in deciding the next step. Edited excerpts:
India’s GDP growth in the April-June quarter, at 5.5 per cent, beat market expectations. However, in April-July, the fiscal deficit had already reached over 50 per cent of the Budget estimates for the entire financial year. What does this mean for the country in terms of sovereign ratings?
On balance, the recent flow of data and information support Fitch's decision on June 15 to place India’s sovereign ratings on a negative outlook.
Fitch has put India on a watch mode. Is it necessary that you would wait another 12-18 months before deciding to cut ratings or can it happen anytime soon?
There is no set time frame. However, Fitch typically takes 12-24 months to assess the situation before potentially making a change to a sovereign's ratings following a change in the outlook.
Reserve Bank of India Governor D Subbarao recently said India should be prepared for a credit ratings downgrade to ‘junk’. What points or areas are you constantly watching for cutting India's ratings? Are you looking at the reforms process or the growth/macro numbers?
Fitch continuously monitors a number of factors that extend beyond reforms and growth. These would include macroeconomic performance and policies, external finances, public finances and an array of structural issues, for example, investment climate, political developments and banking sector.
You have estimated 6.5 per cent growth for the entire financial year. Do you plan to revise it downwards?
Our macro-economic forecasts are continuously being monitored and are subject to review. Fitch will be publishing its quarterly Global Economic Outlook sometime this month, and potential changes to global economic forecasts might impact India’s growth forecasts.
Government's expenditure in the first quarter rose nine per cent against 4.5 per cent in the corresponding quarter last year. On the other hand, investment growth was down to 0.6 per cent. How do you see this?
The outcomes are not particularly surprising, given the economy's recent trends.
Many believe the growth numbers would not impact your decisions on a ratings downgrade, as you work independently of the country’s numbers, and have estimates of your own. Is it true? Fitch has earlier indicated that we are watching India's growth performance closely, when we initially placed India's ratings on negative outlook.
