Fitch cautions India of rating downgrade

Fitch cautions India of rating downgradeGlobal ratings agency Fitch has warned that a loose fiscal in the run-up to 2014 general elections and declining growth could force it to downgrade India's sovereign rating to below the investment level.

Pegging India's gross domestic product (GDP) growth for the current financial year at 6 per cent, Fitch said policy slippage or escalating evidence of a structural fall in the trend growth rate, like relatively weak economic data, could cause the country's sovereign rating to be downgraded.

The ratings agency acknowledged that the slew of economic reforms that the government announced in September this year would be supportive to the country's economic growth, but added that the implementation of these reforms faced political risks.

It underlined that the government's 5-year fiscal consolidation plan aims to slash fiscal deficit to 3 per cent of GDP by 2016-17, but added that India's delivery record on such programmes was not encouraging.

In its statement, the global ratings agency said, "It has gone off track before with similar plans, such as that under the Fiscal Responsibility and Budget Management Act of 2003 or in the Thirteenth Finance Commission report of 2010."

Fitch, like Standard & Poor's, has a negative outlook on India's sovereign rating.

Fitch's warning is in direct contrast to that of Moody's, which recently maintained its outlook on India's rating at stable citing higher rates of saving and investment.