India has a strong medium-term growth outlook, Fitch Ratings says

Fitch Ratings said that its continues to rate India as BBB- or 'stable' on account of strong medium-term growth outlook and favourable external balances against weak fiscal position and a business environment which is still difficult.

Prime Minister Narendra Modi. Representational image Pic: PIB

Fitch Ratings said that its continues to rate India as BBB- or 'stable' on account of strong medium-term growth outlook and favourable external balances against weak fiscal position and a business environment which is still difficult.

Fitch Ratings said, "However, the latter is likely to improve gradually with a continued broadening of the government's structural reform agenda," adding, "Consumer and business sentiment have improved on growth stabilisation in China, and reforms in a number of countries (eg Indonesia and India)."

It said, "Over the past year the government has succeeded in passing some big-ticket reforms in the senate (Rajya Sabha), such as a national Goods and Services Tax and a bankruptcy law that should make it easier to wind up failing businesses. The budget for FY18 signalled continued commitment to a broad reform agenda, with a greater focus now on widening the tax base. The budget also announced future measures to attract FDI and simplify labour laws, albeit without concrete reforms in this regard, apart from abolishing the Foreign Investment Promotion Board."

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The agency cautioned against the already-high public debt burden deviating further from the peer median. It said that this may be caused due to "stalling fiscal consolidation or greater-than-expected deterioration in the banking sector's asset quality that would prompt large-scale sovereign financial support."

Fitch said that another negative senstivity is loose macroeconomic policy settings that cause a return of persistently high inflation and a widening current-account deficit, which would increase the risk of external funding stress.

The central government maintained its goal of strengthening the medium-term public finances in the budget for the fiscal year ending 31 March 2018 (FY18). This is despite a pushing-back of the long-standing 3.0% of GDP fiscal deficit target by another year, to FY19.

"However, considerable uncertainties remain. Demonetisation could help boost government revenue by moving economic activity from the informal to the formal sector, while the stunning withdrawal of 86% of the value of currency in circulation created a cash crunch, hurting economic activity in the short term," Fitch Ratings said.

On a global front, Fitch said, "Growth momentum across APAC remains resilient despite risks from US rate hikes, US dollar appreciation, and threats of protectionism. Domestic demand has been robust on support from fiscal policy and infrastructure spending, as Fitch Ratings had anticipated."

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