Fitch Ratings has affirmed India's long-term foreign-currency issuer default rating (IDR) at 'BBB minus' with a stable outlook. India's rating reflects strengths from a robust growth outlook compared with peers and resilient external finances, which have supported India in navigating the large external shocks over the past year.

These are offset by India's weak public finances, illustrated by high deficits and debt relative to peers, as well as lagging structural indicators, including World Bank governance indicators and gross domestic product (GDP) per capita.

India is forecast to be one of the fastest-growing Fitch-rated sovereigns globally at 6 per cent in fiscal 2023-24 (FY24), supported by resilient investment prospects.

Still, headwinds from elevated inflation, high interest rates and subdued global demand, along with fading pandemic-induced pent-up demand, will slow growth from our FY23 estimate of 7 per cent before rebounding to 6.7 per cent by FY25.

Strong growth potential is a key supporting factor for the sovereign rating. Growth prospects have brightened as the private sector appears poised for stronger investment growth following the improvement of corporate and bank balance sheets in the past few years, supported by the government's infrastructure drive, Fitch said in a release.

Still, risks remain given low labour force participation rates and an uneven reform implementation record, it noted.

Though India's large domestic market makes it an attractive destination for foreign firms, it is unclear whether India will be able to realise sufficient reforms to allow the economy to benefit substantially from opportunities offered by the deeper integration in global manufacturing supply chains, including China+1 corporate strategies that encourage diversification in investment destinations.

Fitch forecasts headline inflation in the country will decline, but will remain near the upper end of the Reserve Bank of India's 2-6 per cent target band, averaging 5.8 per cent in FY24 from 6.7 per cent last year.

Core inflation pressure appears to be abating, falling to 5.7 per cent in March, its lowest since July 2021.

Fibre2Fashion News Desk (DS)

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