Fitch Lowers India’s Outlook to Negative

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
  • Corruption
  • 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.


16 thoughts on “Fitch Lowers India’s Outlook to Negative”

  1. I get your point DJ, ultimately this debate falls between socialism and capitalism, i guess. But im sure the unemployed in Europe are in a far better state of lifestyle than the poor in India.

    1. There are multiple issues crossing against each other. I agree that there is socialism as far as bank losses go in Europe and the financial sector there is socializing its losses (and that is despicable). However, I don’t think the $10B goes into that. It is being put up purely due to self-interest of each country, based upon their participation and desires in the global economy. The $10B isn’t quite going into the pockets of the European bankers as yet. I would think that Russia, China wouldn’t give money away to European bankers just like that, without anything in return.

      If you were to talk about socialism vs capitalism, you would also have to talk about socialism practiced by India which is the sole reason for the poverty in India.

      By the way, I do think there is a problem with this, but its not because of what you mention. The Indian financial think-tank believes that they can maintain high growth via increased trade with the West on the same terms as in the past (which is why the engagement with IMF, etc). That is going to be difficult. At the end of the day, the state of the poor will only improve when we stop having socialism and crony capitalism at home.

      1. I think manshu’s new post has made things clear that $10b is a loan. Coming back to our earlier discussion, although I do not strictly subscribe to either of the extreme views, but my original socialism-capitalism question was specific to use of $10 billion: (to help poor indians (i.e.socialism) or impress upon the world to attract capital & trade inflows to India (i.e. capitalism)). its just a food for thought 🙂

  2. I understand your concern. I can only suggest a couple of things to think about (that may or may not be right – it is only personal opinion):

    If Europe thought the same way as you are doing: they can say, we have 24% unemployment in Spain, lets stop importing from the BRICS, so that we can keep those jobs and industries in Europe, and solve our crisis, then what? Will it cost India more than 0.6% GDP or less?

    India’s poverty has its roots in bad economic policies here at home. Its best days have been due to increased trade with other countries, and that is still the best hope for removing poverty here. In a nutshell, India needs the world economy more than the world needs India. The money being put up must have been negotiated with some benefits – the BRICS probably get a larger role in how the global economy rules are set up and they can put pressure on Europe that they maintain trade with the BRICS. That is worth many GDP percentage points over time.

    By the way, it is a fund meant for emergency lending. There is a theoretical possibility that it is not spent or that it gets returned to the IMF. It is not an outright donation as you suggested. At least the BRICS are in this together and will make noise about how funds are used.

    1. I’m shocked quite frankly, but maybe I don’t understand this completely. Is this India’s quota to IMF that we would have had to come up with any way or a sum over and above that?

    2. You should not be surprised. Its part of the funding of IMF which has long been funded by the OECD (developed countries). BRICS are now putting up $60B and $10B is India’s share. Every major economy has funded IMF in the past, and India will also be expected to do so. And, in return India/BRICS will have a larger say in the affairs of the IMF. You should not think of India as an isolated economy from the world economy. India benefits from globalization as does every country and there are responsibilities that go with being a major player in the global economy.

      1. The point is $10 billion is not a small amount, its 0.60% of India’s GDP (every drop of GDP counts now, after the recent growth debacle). Any idea what is the aid India inturn gets from the likes of IMF and World Bank. ? I have heard arguements that why should poverty stricken India pay for the extragavanzas of European nations. ?

  3. It was quite amusing to see FM saying that Fitch has ignored the “latest positives”. Where are the positives but? Latest numbers speak for themselves: GDP at 5.3%, CPI at 10.4%, IIP at near Zero growth.

    1. As DJ says, it seems he was referring to announcements, not that big of a difference right? 🙂 I think perhaps the FII numbers are better, are they?

  4. I think what the govt means by ignoring latest data is that they had released a press release on infrastructure projects a couple of weeks back. And, there has been talk about not going ahead with the GAAR and other tax changes. However, the govt doesn’t realize that lip service only goes so far, they have to eventually execute on their plans, and execute well. There is no short cut, or PR campaign that will fix deep issues like corruption.

        1. Its a challenge to even find the permalink to the press release:

          Btw, even though I criticize the govt all the time, I’m not excessively bearish. I have been holding call options over the last few weeks, and increased equity stake marginally the last time we went below 5000 on the nifty. Nothing great, but economic policy is one thing, investing is another.

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