Wed, Jul 16 01:45 AM
Fitch Ratings on Tuesday revised the outlook on the India's long-term local currency Issuer Default Rating (IDR) to 'negative' from 'stable', based on the deteriorating Centre's finances, combined with growth in government debt. However, Fitch retained long-term foreign currency IDR outlook 'stable' despite current account deficit, owing to growing remittances into the country.
The move of the international rating agency has already hit all the markets, including equities, money, and foreign exchange markets. This is also expected to hit foreign institutional inflows (FII) and foreign direct investments (FDI) inflows.
"The revision to the local currency Outlook is based on a considerable deterioration in the central government's fiscal position in 2008-09 (FY09), combined with a notable increase in government debt issuance to finance subsidies not captured in the budget," said James McCormack, Head of Asia Sovereign ratings. Inflation has already gone out of control.
Fitch rating outlook cautions that the Centre's fiscal management is also expected to go out of control soon, straining the exchequer during the current fiscal. "Future rating actions with respect to India's local currency rating will depend largely on whether the FY09 fiscal slippage is reversed, which would allow for a resumption of the decline in India's high government debt ratios," added McCormack.
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