Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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Fitch Ratings on Thursday retained India’s sovereign rating at ‘BBB-’, the lowest investment grade rating, although maintaining its stable outlook. The company added that the economy would shrug off any lingering effects of demonetisation and GST during 2018-19 and 2019-20. “India’s rating balances a strong medium-term growth outlook and favourable external balances with weak fiscal finances and some lagging structural factors, including governance standards and a still-difficult, but improving business environment,” Fitch said. The agency said that a favourable economic growth outlook supported India’s credit profile, even though real GDP growth fell to 6.6% in financial year 2017-18. “Fitch forecasts growth to rebound to 7.3% in FY19 and 7.5% in FY20, as a temporary drag will fade from the withdrawal of large-denomination bank notes in November 2016 and the introduction of a GST in July 2017,” the agency said. “The GST is an important reform, however, and is likely to support growth in the medium term once teething issues dissipate,” it added. “India’s five-year average real GDP growth of 7.1% is the highest in the APAC region and among ‘BBB’ range peers. Growth has the potential to remain high for a substantial period of time, as convergence with more developed economies can be expected.” The agency added that a recent analysis conducted by it found that India had the highest medium-term growth potential among the largest emerging markets. ‘Solid policy record’ “The RBI is building a solid monetary policy record, as consumer price inflation has been well within the target range of 4% +/- 2% since the inception of the Monetary Policy Committee in October 2016,” it added. “Fitch expects inflation to average close to 4.9% in FY19, still almost double the ‘BBB’ range median of 2.5% for 2018.” The agency said it expected the RBI to start raising its policy repo rate next year, from the 6% currently, as growth gains further traction. It added that monetary tightening could be brought forward in case recent government policies such as the MSP hike for agricultural goods push up inflation expectations.
