Ratings major Fitch believes that acceleration in reform and policy measures will help in improving the country's long-term economic outlook and would be supportive for India's sovereign ratings.
In a telephonic interview with Business Line , the Director, Fitch (Asia-Pacific Sovereign Ratings group), Mr Art Woo, talks about the story behind the outlook revision and the way ahead. Excerpts:
What are the reasons for the revision in outlook?
Fitch's decision to change the outlook to Negative from Stable reflects increasing concerns over the country's economic and fiscal outlook.
This includes slowing real GDP growth, persistent inflationary pressures and weakening public finances.
You have reaffirmed the sovereign rating. How will you explain that?
The decision to affirm India's sovereign ratings at 'BBB-' indicates that the government’s ability and willingness to repay its debt obligations is still in line with similarly rated-sovereigns in the 'BBB-' rating category.
However, if India's economic or fiscal situation deteriorates and/or external pressures intensify, this could place further downward pressure on India's rating, particularly compared to other 'BBB-' rated sovereigns.
Is there any possibility of the rating being revised soon? What is the chance of a downgrade?
The negative outlook suggests that there is more than likely chance of revising rating downwards from ‘BBB-’ to ‘BB+’ in the next 12 to 24 months. When we say more than likely chance, this essentially translates into more than 50 per cent chance.
What is the course correction India requires to do on priority basis?
Fitch does not recommend policies that the Governments should foll
ow. However, Fitch believes that an acceleration in reform/policy measures that help improve the country's long-term economic outlook would be supportive for India's sovereign ratings.
In particular, measures that help improve the investment climate and fiscal consolidation process would be viewed positively.
With so much political uncertainty, do you believe that Government can go for policy correction in the near-term?
That possibility always exists. Since the General Election is likely to held in early 2014, there appears to be a small window available for the Government to accelerate economic reforms.
Where do you see the threat, coalition politics or internal structure of ruling Congress?
It appears that the combination of both (coalition politics and internal structure of the ruling Congress) has impeded the economic reform process of late.
We will continue to monitor the situation closely and see what measures are taken to improve India's economic and fiscal outlook in the coming quarters.