Global rating agency Fitch aims that the Centre’s reform agenda in response to the Covid-19 pandemic shock has the potential to raise India’s medium-term growth rate. However, the Fitch pointed out, there are also downside pressures to grow and that it will take time to assess “whether the reforms are implemented effectively”.
“In recent years, the Indian authorities’ strategy to keep the public debt ratio and broader public finances under control has relied heavily on expectations of sustained and rapid nominal GDP growth. The pandemic will slow the medium-term growth, as we believe that damaged corporate balance sheets will dampen investment for years. Renewed asset-quality challenges in banks and generally fragile liquidity for non-bank financial companies could also constrain growth prospects and jeopardize the stability of the medium-term government debt or GDP trajectory.” Fitch said.
Accordingly, raising medium-term growth rates under these circumstances will require reforms to support investment and boost productivity. Fitch noted the GDP growth outlook as a key rating sensitivity when it revised the Outlook on India’s ‘BBB-‘ rating to ‘Negative’ from ‘Stable’ in June.
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