Mumbai: Global rating agency Fitch on Tuesday reiterated its negative outlook on India’s sovereign credit rating, stating that elevated inflation levels, slowing growth and widening current account deficit remain key concerns.
Though the rating agency praised the government’s recent initiatives in opening up a few sectors for foreign direct investment (FDI), it highlighted that ‘execution risk’ remains high given India’s track record of policy paralysis.
“The negative outlook reflects Fitch’s concerns over deterioration in economic and fiscal outlooks, particularly a sharp slowdown in growth, persistent inflationary pressures and weaker public finances and sluggish structural reforms,” said Art Woo, director, Asia sovereign rating, Fitch.
He said the rating agency would keenly watch the Budget as it would give an indication of the government’s commitment to fiscal consolidation. He said the major negative for India was the disappointing macroeconomic situation with real GDP growth slowing to 5-5.5 per cent.
“Perhaps, the greater concern is India’s current account deficit, which has widened to 5.6 per cent of the GDP during July-Sept-ember quarter from 3.9 per cent in the previous quarter,” Woo said adding that India is likely to miss the fiscal deficit target of 5.3 per cent of GDP for the fiscal.
Finmin unfazed by downgrade threat
The finance ministry on Tuesday said it was not worried about the threat of ratings downgrade by global agencies like Fitch as it is moving on the right track and will restrict fiscal deficit to 5.3 per cent of the GDP in 2012-13.
“We are not worried. We have been saying we are on right track. But people still distrust us and ask whether we will able to achieve fiscal deficit target...We will adhere to fiscal consolidation road-map,” department of economic affairs (DEA) secretary Arvind Mayaram said, when asked about the threat from Fitch.
The government has taken a number of steps to restrict the fiscal deficit to 5.3 per cent of the GDP during the financial year, he said.