American credit rating agency Fitch Ratings on Friday slashed down India’s GDP growth rate from previous forecast of 5.6 per cent to 4.6 per cent for the fiscal year 2019-20. It restated India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB-‘ with a ‘Stable Outlook’.
Terming credit crunch and lack of confidence in consumers as the major factors responsible for the downgrade in GDP, the rating agency said, ‘our outlook on India’s GDP growth is still solid against that of peers, even though growth has decelerated significantly over the past few quarters, mainly due to domestic factors, in particular, a squeeze in credit availability from non-banking financial companies (NBFC) and deterioration in business and consumer confidence’.
Fitch Ratings also said that with the help of easing monetary & fiscal policy and structural reforms, the economy will start giving positive sign and will gradually reach to 5.6 per cent and 6.5 per cent in FY 21 and FY 22 respectively.
Fitch Ratings is among the top three international rating agencies, the other two being Moody’s and Standard & Poor’s. The rating agency Moody’s also slashed down the GDP growth rate for India from previous 5.8 per cent to 4.9 per cent for 2020 fiscal last week. The Asian Development Bank has also made a projection of 5.1 per cent growth rate for 20 FY. However, Fitch Ratings’ growth forecast is the lowest one – 4.6 per cent.
The Reserve Bank of India (RBI) has also revised its growth rate from previous estimation of 6.1 per cent to 5 per cent for 2019-20.
Fitch Ratings said that India’s rating balances a still strong medium-term growth outlook compared with ‘BBB’ category peers and relative external resilience stemming from solid foreign-reserve buffers against high public debt, a weak financial sector and some lagging structural factors, including governance indicators and GDP per capita.
Fitch Ratings expects a general government debt level of 70.4 per cent of GDP in FY 2019-20 and a general deficit of 7.5 per cent of GDP.
The report said, ‘ we believe there is a risk of more significant fiscal loosening in the event of continued weak GDP growth, for example, in the context of lingering problems in the NBFC sector’.
Fitch Ratings was hopeful that the central bank will cut the policy rate by another 65 basis points in 2020, after a cumulative 135bp easing since February 2019.