Fitch Ratings has revised India's outlook to negative from stable. this news came in at a time when the market was grappling with Reserve Bank of India's unexpected stance - of not going with the popular expectation of a rate cut.
Fitch says the revision in its outlook is reflective of heightened risks that India's medium- to long-term growth potential will gradually deteriorate if further structural reforms are not hastened, including measures to enhance the effectiveness of the government and create a more positive operational environment for business and private investments.
Just a week back, Credit rating agency Standard and Poor's had warned that India may become the first among the BRICBrazil, Russia, India and Chinacountries to lose its investment grade rating. It had cited slowing GDP growth and political roadblocks to economic policymaking as some of the factors that could lead to such an action.
The negative outlook also reflects India's limited progress on fiscal consolidation and, in particular, on reducing the central government deficit despite improvement in the financial health of state governments.
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"Against the backdrop of persistent inflation pressures and weak public finances, there is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy," said Art Woo, Director in Fitch's Asia-Pacific Sovereign Ratings group.
Here is what the Fitch note said:
The rating affirmation reflects India's diversified economy and its high domestic savings which reduce reliance on foreign investors for private investment and fiscal funding. The Indian government is able to issue long-term debt at a low cost in its own currency.
Net external debt is very low and still high foreign exchange reserves of