Fitch Updates On India - No Rating Change

by Mary Swire, Tax-News.com, Hong Kong

14 May 2009

India's long-term foreign currency and local currency issuer default ratings at BBB-. The outlook on the foreign currency issuer default rating (IDR) remains stable and the outlook on the local currency IDR remains negative, said a press release from Fitch Ratings. India's fiscal deficit will reach 9.5% of GDP in 2009, up from 6.1% in 2008 resulting in a slight increase in Government debt, to 77.9% of GDP. A fiscal boost may still be in order, subject to international confidence in the medium term strategy being maintained.

The magnitude of the fiscal deficit and the accompanying borrowing requirement may affect the availability and cost of domestic credit for the private sector, emphasizing the need to ensure that the current fiscal imbalance is corrected over the medium term. Therefore the medium-term fiscal strategy will need to be studied again carefully, when the 13th Finance Commission reports on this subject, due no later than October 2009. Despite the increasing fiscal imbalance, India's external creditworthiness is strong. India has ample external liquidity. The current account deficit will fall to 1.2% of GDP in 2010 from 2.9% of GDP in 2009.

The declining growth rates of services exports and remittances may be more than offset by the effects of lower oil prices and a reduction in the growth rate of non-oil imports. India's economic growth has been slowing since September 2007. Fitch has forecast a GDP growth of 5 per cent in 2010, the lowest annual growth rate since 2003. Fiscal stimulus and monetary easing may only partially offset the slowdown in growth. The magnitude of the fiscal deficit and the accompanying borrowing requirement may affect the availability and cost of domestic credit for the private sector, underscoring the need to ensure the current fiscal imbalance is corrected.

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