)
Global rating agency Fitch on Thursday retained India’s credit outlook at ‘stable’ saying although ‘dynamism’ is back in the economy, translation of reforms into higher growth would depend upon actual implementation.
The agency also raised its forecasts for real GDP growth to eight per cent for the current financial year and further to 8.3 per cent in 2016-17, compared with 7.4 per cent GDP growth in 2014-15. The latest forecast is calculated on the new base year for GDP calculation. Fitch decided to retain the stable outlook for its ‘BBB-’ rating. Referring to the policy initiatives of the Narendra Modi- government, Fitch said the reform agenda had brought “dynamism back to the Indian economy, after a couple of years of limited progress on the structural front”.
India's relatively “weak business environment and standards of governance”, as well as widespread infrastructure bottlenecks will not change overnight, it said, adding, “there is ample room for improvement”.
Fitch said the new GDP growth levels and the pick-up in GDP from mid-2013 were “difficult to reconcile with indicators” and anecdotal evidence that show low investment levels, weak corporate balance sheets and a rise in banks’ non-performing loans.
The stable outlook reflects Fitch’s view that upside and downside risks to the ratings are balanced, it said.
Fitch further said that implementation of the structural reform agenda and lower inflation would improve the sovereign credit profile.
"However, India's sovereign ratings are constrained by limited improvement in India's fiscal position, which is a longstanding key weakness," it said.
On banking sector, Fitch said it will likely remain weak for some time, although the pace of deterioration in asset quality has eased at a few large banks.
State banks, it said, remain particularly affected, accounting for around 90 per cent of the system's stressed assets while suffering from sharply reduced earnings and weak capitalisation.
"The government's ability to provide substantial financial support to the banking system in a potential crisis is limited given the already high government debt burden," Fitch added.
