India's Medium Term Growth Outlook is very important for assessing sovereign ratings

Mumbai, Ta. 10 February 2021, Wednesday

Given the high fiscal deficit and the slowdown in consolidation, India's medium-term growth outlook could play a key role in assessing India's sovereign ratings, said global ratings agency Fitch.

The budget for the next financial year has directed the fiscal policy to be relaxed to support the economic recovery. Corona has plunged the country's economy into a deep recession, forcing the government to increase public debt to get it out.

Debt to Gross Domestic Product (GDP) remains important in assessing sovereign ratings, Fitch said in a statement.

Fitch downgraded India's BBB-rating outlook from stable to negative in June 2020. The reshuffle came in the wake of Corona's impact on India's public debt arithmetic.

When India entered the Corona era, its fiscal scope was very limited in terms of ratings. In 2012, India's public debt was 9% of GDP. In the next five years, the figure is likely to rise to more than 30 per cent, Fitch said. Fitch's vote comes as a result of improvements to budget targets.

Recent implementation by the Government of India on agricultural laws and labor laws has posed challenges to its implementation and risks reducing fiscal spending beyond the planned level.

India's medium-term growth opportunities also depend on how policy changes are made to address weaknesses in the financial sector.