After Standard and Poor’s, the leading credit rating agency of the world, Fitch, another international credit rating agency has downgraded India’s local currency outlook to negative from stable, due to worsening fiscal position of the Central government and spiralling inflation.
One among the top three global credit rating agencies Fitch Inc has revised India’s local currency outlook from stable ‘BBB’ to negative ‘BBB-’ viewing the deteriorating fiscal condition of the country as India’s Gross Domestic Product rate has slipped down due to higher rate of inflation and impact of global recession on the Indian market. However, it sustained India’s long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' with stable outlook.
Here the negative outlook means that the agency has kept India under scanner to watch out the economic condition of the country and if it declines in the next 12 to 18 months, it’s rating could be downgraded, said Fitch.
It has also revised India’s short-term foreign currency IDR at F3 and country ceiling at ‘BBB-’ while it has readjusted GDP growth rate for 2008-09 from just under 9% to 7.7%.
Describing the reason behind this revision, Head of Asia Sovereign Ratings of Fitch, James McCormack, said, “The revision to the local currency outlook is based on a considerable deterioration in the central government's fiscal position in 2008-09, combined with a notable increase in government debt issuance to finance subsidies not captured in the budget.”
The rating agency has also stated that the total deficit of country including subsidies to oil companies may also go beyond 6.5% of GDP while budgeted deficit, which government had projected to 2.8% may go to 4.5 due to rising budget subsidies, interest payment and public wages.
This rating of Fitch has affected the Indian currency badly in the forex market on Tuesday as rupee fell to a one-week low at the trading rate at 43.23/24 per dollar, 0.71% weaker than Monday’s close of 42.92/93. Earlier in July it had hit a 15-month low of 43.50.
Just a week ago, foremost credit rating agency, Standards and Poors downgraded India’s credit rating from speculative ‘BBB-/Stable/A-3’ to tentative ‘BB+/Positive/B’.
The third credit rating agency Moody’s investor service is not likely to be in a hurry to revise the credit rating, however, it’s official said that an unhealthy fiscal position, pursuant to an increase in subsidies and continuous recession would lead the agency to take a holistic view of the situation. Moody has not revised India’s credit rating since 2004.
In case, it also revise its credit rating and worsen India’s position, it would be hard for India to get debt as these ratings play a crucial part in the debt.
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