Fitch downgrades India GDP growth to 5 per cent in FY10

15 May 2009

Fitch Ratings yesterday said it expects India's gross domestic product (GDP) growth to decelerate to about 5 per cent in FY10 due to recession in advanced economies and the decline in capital inflows.

Fitch estimates Indian GDP growth at 6.5 per cent in FY09.

The new government in India will face considerable challenges in balancing the need for short-term stimulus measures to counter the economic downturn and the necessity of re-establishing a sustainable medium-term path for the country's public finances, Fitch said in its note on India.

India's long-term foreign currency and local currency issuer default ratings (IDRs) are 'BBB-'. The outlook on the foreign currency IDR is 'Stable', while the outlook on the local currency IDR is 'Negative'.

The rating agency said India's slowing economy was met with two supplementary budgets in FY09, contributing - along with lower tax receipts - to a dramatic increase in the consolidated general government deficit, which jumped to an estimated 10.6 per cent of GDP in FY09 from 6.1 per cent in FY08.

"While current economic conditions are prompting many governments to undertake counter-cyclical stimulus measures, the recent deterioration in India's fiscal position accentuates underlying structural weaknesses in public finances that, if unaddressed, could undermine sovereign creditworthiness," says James McCormack, head of Asia Sovereigns at Fitch.