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  3. Fitch warns India to downgrade sovereign rating

Fitch warns India to downgrade sovereign rating

27 Aug 2013 Evaluate

Amid rising doubts over the widening country’s deficits due to a huge depreciation in the rupee's value, global ratings agency Fitch has warned India of a downgrade if the country is unable to meet its fiscal deficit target adding that India's fiscal numbers look weak and the space to contain expenditure is very limited in the second half of the financial year.

The rating agency said that a slowdown in fiscal expenditure in the second half of the year will remain quite challenging for the country. Meanwhile, the government has set target to contain the CAD at 3.7 per cent and fiscal deficit at 4.8 percent of GDP in the current financial year. Referring to the rupee depreciation, Fitch said that falling rupee value may dent the country's foreign exchange reserves, adding that the total reserves could fall to $230 billion from the present level of around $278 billion. Recently, the rupee touched an all-time low of 65.56 against the dollar last week. However, last week, Fitch said that the rupee depreciation would not trigger a change in its ratings and will maintain a 'Stable Outlook' on India's sovereign rating mainly on the back of the country's sizable forex reserves, fiscal deficit management and structural reforms.

In the previous fiscal, the government had massively cut its expenditure to meet its fiscal deficit target owing to a pressure from international rating agencies threatening to cut the country's sovereign rating to junk status if the fiscal deficit worsens. Although, the government was able to contain the fiscal deficit at 4.89 percent in FY13 as against a stated target of 5.2 percent of GDP.

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