India`s pace of debt reduction remains gradual: Fitch Ratings
Fitch Ratings has said that India's pace of debt reduction is gradual, leaving room for a downside risk to sovereign rating in the eventuality of a significant economic shock. However, it expressed confidence in India's ability to stick to its medium-term fiscal framework, which aims to reduce debt and bring it on a downward trajectory over time. In August 2024, Fitch affirmed India's sovereign rating at 'BBB-' with a stable outlook. India's rating has remained unchanged at 'BBB-', the lowest investment grade, since August 2006.
Fitch considers the budget as broadly neutral for growth, with the consumption boost from tax cuts and sustained capital expenditure likely to offset the contractionary effects of deficit reduction. It said the policy focus on boosting investment through deregulation is expected to have a positive impact on medium-term growth, but its success will depend on the effective implementation of these policies. It added that sustained deficit reduction, adherence to fiscal targets, and continued transparency would further strengthen India's fiscal credibility, which Fitch affirmed when it maintained the 'BBB-' rating with a Stable outlook in August 2024.
However, the rating agency said fiscal metrics remain weak compared to global peers, with general government deficits, debt, and debt service burdens significantly higher than the median for similar economies. It said that the government has provided greater clarity on its medium-term fiscal strategy, which aims to reduce central government debt to 50 per cent of GDP (± 1 per cent) by FY31, about 7 per cent lower than FY25.
