Fitch India review in Q3 fiscal deficit & inflation remain issues

Last Updated: Thu, Sep 13, 2012 03:51 hrs

Fitch, the global rating agency, is to review India’s sovereign rating in October-November, aiming to capture its fiscal health and concerns over inflation.

The agency presently has a BBB- rating, with negative outlook, on India. It will take into account the fiscal performance till end-September, among other parameters. The rising fiscal deficit of the central government and sticky inflation remain key concerns, said Atul Joshi, managing director and chief executive of India Rating and Research Pvt Ltd, a Fitch group entity.

Fitch has rebranded its national rating business in this country. The existing domestic ratings for about 1,500 companies have been transferred to India Ratings.

Other rating agencies such as Standard & Poor’s and Moody’s have also maintained a negative outlook on India, with signals for possible downgrades if the fiscal health worsens. Referring to the central government’s fiscal deficit, Joshi said this could be in the region of six per cent of gross domestic product (GDP) at the end of March 2013.

The consolidated fiscal deficit of Centre plus states is estimated to be about nine per cent of GDP by March 2013. Unlike the Centre, the fiscal health of state governments has shown improvement over the years. Hence, the combined fiscal deficit, in excess of 10 per cent some years earlier, might come down to nine per cent, said Joshi.

On the external sector, he said the current account deficit (CAD) widened due to a weak rupee. In 2011-12, the CAD rose to $78.2 billion (4.2 per cent of GDP) from $46 bn (2.7 per cent of GDP) in 2010-11. It largely reflected the higher trade deficit on account of subdued external demand and relatively inelastic imports of petro products, gold and silver, according to Reserve Bank data.

India’s foreign exchange reserves are comfortable. This is the strongest point for the country to be classified in the investment grade, said Joshi.

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