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Rediff.com  » Business » Further rating cut looms for India, warns Fitch

Further rating cut looms for India, warns Fitch

Last updated on: August 13, 2012 09:39 IST

Further rating cut looms for India, warns Fitch

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Fitch Ratings, which recently lowered India's credit outlook to negative, has said the possibility of downgrading the country's sovereign rating is more than 50 per cent in the next 12-24 months.

"The negative outlook suggests there is a more than likely chance of Fitch 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," said Art Woo, director in Fitch's APAC Sovereigns team.

The comments were made in reply to emailed queries on the possibility of Fitch revising India's credit rating.

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Image: Fitch Ratings building is seen in New York.
Photographs: Jessica Rinaldi/Reuters

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Fitch had lowered India's credit outlook to negative from stable on June 15. The downgrade of credit outlook indicated that the country's medium-to long-term growth potential could gradually deteriorate if further structural reforms are not hastened to create a more positive operational environment for business and private investments.

Downgrading sovereign rating could impact investor sentiments and could lead to higher borrowing costs.

"The Indian economy is facing a challenging environment as the macroeconomic picture has turned unfavourable as growth has experienced a sharp slowdown, while inflation pressures have remained persistent," Woo said.

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Photographs: Ajay Verma/Reuters
Tags: Woo , India

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Stating that investment climate in India appears to be facing structural challenges; the rating agency observed the government's recent decision to review tax proposals such as GAAR does not come as "too surprising".

"India appears to be facing structural challenges surrounding its investment climate. Therefore, the decision to review certain tax proposals should not be considered too surprising," Woo said on queries related to the proposals for a new taxation regime, the General Anti Avoidance Rules.

Last month, Prime Minister Manmohan Singh set up a panel headed by ICRIER chief and taxation expert Parthasarathi Shome to bring "greater clarity" and prepare a roadmap for GAAR by September 30 for its implementation.

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Photographs: Rupak De Chowdhuri/Reuters

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Later, the terms of reference of the panel was expanded by including issues relating to taxation of FIIs and portfolio investors.

Meanwhile, on August 9, rating agency Mooody's had slashed economic growth projection to expand 5.5 per cent this year amid turbulent global conditions, domestic policy mis-steps and poor monsoon.

In recent days, financial services firm Citi, CLSA and Crisil have slashed their growth forecast for Indian economy. The Reserve Bank of India, in its quarterly policy review on July 31, had trimmed its growth forecast to 6.5 per cent from the earlier seven per cent.

The government, in the 2012-13 Budget, had projected an economic growth of 7.6 per cent.


Image: Workers hold iron rods at a construction site of a bridge on the river Tawi in Jammu.
Photographs: Mukesh Gupta/Reuters

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