S&P lowered India’s credit rating outlook to negative back in April, and now Fitch has also come out and done that. Everything that was said during S&P’s statement has been repeated now, and while nothing new, they serve as a reminder of all the things that are going downhill currently.
Fitch did mention some positives as well, and here are the positives and negatives from the Fitch release.
- High domestic savings which lower the need to borrow from abroad.
- The government is able to issue debt on a relatively low cost in INR which means it doesn’t need to borrow in a foreign currency and worry about a sovereign default.
- Net external debt is low and the forex reserves provide a cushion against any external shock.
- A big pool of educated workforce and innovative private services sector.
- High central government deficit
- Slow growth and high inflation
- Inadequate reforms
- Forex reserves have fallen 11% since August 2011
- Government debt stood at 66% of GDP whereas BBB median was 39%
The government reaction has been quite different from what it was to the S&P announcement, this time they say that Fitch has ignored the latest data. How they react to the announcement however is fairly irrelevant, what they do to improve the situation is important, and in any case Fitch hasn’t said anything with respect to government action that the RBI hasn’t said already (except of course corruption) and all this has been repeated endless times already.
It is quite likely that the rating itself will be lowered by both S&P and Fitch in the next year if things go on this trajectory and nothing is done on the policy front.