Fitch cuts India rating outlook to negative

MUMBAI Mon Jun 18, 2012 4:52pm IST

1 of 2. An employee counts Indian currency notes at a cash counter inside a bank in Kolkata June 18, 2012.

Credit: Reuters/Rupak De Chowdhuri

MUMBAI (Reuters) - Fitch Ratings cut its credit outlook for India to negative from stable, nearly two months after rival Standard & Poor's made a similar call, citing risks that India's growth outlook could deteriorate if policymaking and governance don't improve.

"A significant loosening of fiscal policy, which leads to an increase in the gross general government debt/GDP ratio, would result in a downgrade of India's sovereign ratings," Fitch said in a statement on Monday.

The agency estimated general government debt for India of 66 percent of GDP at the end of the most recent fiscal year, compared with a median of 39 percent for BBB-rated countries.

India's economy grew just 5.3 percent in the March quarter, the weakest in nine years, but earlier on Monday the central bank unexpectedly left interest rates on hold, sending bonds, stocks and the rupee lower.

The rupee weakened further to 56 per dollar from around 55.82 before the Fitch statement. Bond yields were range-bound, while stocks were already shut for the day.

"Against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy," Art Woo, a Fitch director, said in a statement.

Fitch maintained its BBB- rating, the lowest investment grade.

Fitch said it expects the Indian economy to grow just 6.5 percent in the fiscal year that ends in March, down from its earlier forecast of 7.5 percent, while it expects wholesale price index inflation to average 7.5 percent.

"India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms," it said.

A week ago, S&P said India could become the first of the BRIC economies, which also include Brazil, Russia and China, to lose its investment-grade status, prompting an angry response from the government.

(Reporting by Tony Munroe; Editing by Aradhana Aravindan)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
RajeevRawatCA wrote:
India must make decisions to serve its unique demographics and resist the temptation of mimicking Western economies. Ratings agencies matter, but less than the government’s own assessment of what’s good for its people and economy. Poor ratings can damage the country’s prospects, but bad policy will damage the country’s future.

Ratings agencies can be wrong. They don’t have full data, and are often driven to serve the interests of those who fund them. They are not pledged to serve the Indian nation.

Jun 18, 2012 1:45am IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Markets

REUTERS SHOWCASE

Segway in India

Segway in India

Segway’s India business pegs hope on tech-savvy Modi  Full Article 

Power Outage

Power Outage

Mumbai hit by power cuts  Full Article 

Commodities

Commodities

Gold imports, premiums to jump on festive demand - top refiner  Full Article 

Economic Worries

Economic Worries

Pakistan's promises to IMF in doubt as protests sap economy   Full Article 

Islamic Finance

Islamic Finance

Basel III deposit challenge looms over Islamic banks   Full Article 

Antitrust Probes

Antitrust Probes

U.S. business lobby says concerned China antitrust probes unfair.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage