Fitch's rating disappointing but investors see future in India, its reforms
The business of rating is very subjective,
especially when it comes to sovereigns. Fitch has
retained the rating of India at BBB- but given
a negative outlook compared to the other two agencies that think it is stable.
Hence, Fitch’s view comes as a disappointment for sure.
India is probably going to be one of the best-performing economies
in the world this year. This has been done without the government going in for
excessive fiscal spending as the western nations have done. This factor has
been appreciated by S&P and Moody’s. The way in which we have rebounded has
been remarkable, with the government following a rather unique route since the
pandemic began of ushering in some tough reforms in the last 18 months. It has
been ably supported by the Reserve Bank of India (RBI).
Fitch’s main grievance appears to be on the side of public debt,
which admittedly is high compared to the median of comparable countries.
Ideally, credit rating
agencies (CRA) need to give more weight to the underlying as
well as the efforts being put to get things back on rail. The Union Budget has
laid down the fiscal path for the centre and this is also being pursued by the
states under the revised FRBM guidelines. The focus has been on galvanising
investment as seen by the higher capex. There have been limited giveaways on
the tax front and the government has taken the bold step on not compromising
mulch on taxes on fuel. To top it all, the asset monetisation plan lays down
the roadmap for revenue to be garnered and the sale of Air India bears
testimony to the urgency on disinvestment. Hence, we do have reason to be
disappointed in the view taken by the CRA.
Notwithstanding the view taken by these rating agencies, the
relentless flow of foreign direct investment (FDI) is a vindication of reforms
and how investors see India and its future. The government has ushered in
reforms that have the potential to change the landscape in the medium term. The
balance of payments has been positive as seen in the continuous growth of forex
reserves with exports riding the wave of global trade.
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