Art Woo, Asia sovereign director with Fitch Ratings, says there is a more than 50 per cent chance that India’s sovereign ratings would be cut to junk from the current lowest rating in the investment grade. Woo tells Dilasha Seth the Indian government will not be able to rein in the fiscal deficit at 5.1 per cent in 2012-13; rather, it would widen to 5.6-5.9 per cent. He pegs India's growth at 6.5 per cent for this financial year. Edited excerpts:
On what parameters did Fitch downgrade the outlook on India's credit ratings? How long will you be assessing the country before taking a decision to downgrade it?
Fitch assesses all sovereigns with the same methodology that involves analysing a wide array of factors, including macroeconomic performance and policies, structural features, external finances and public finances, against similarly rated sovereign peers. The negative outlook on India's sovereign ratings suggests there is a more than likely chance of downgrading the ratings to ‘BB+’ from ‘BBB-’ in the next 12 to 24 months. When we say a more than likely chance, this essentially translates into over 50 per cent.
In April, Standard & Poor’s downgraded India’s credit ratings outlook. Was your action triggered by the action of another rating agency?
Fitch assesses sovereigns based on its sovereign rating methodology.
What is your outlook on India’s economy? Will the government be able to meet the fiscal deficit target at 5.1 per cent of the GDP this fiscal?
Fitch is forecasting India’s real GDP to rise 6.5 per cent in FY’13. The confluence of weaker economic growth and a large subsidy bill means the government may miss its fiscal deficit target of 5.1 per cent of GDP for FY’13. Fitch expects it to be 5.6-5.9 per cent of GDP.
India’s growth declined, but Brazil and Russia grew much slower. Brazil grew 1.4 per cent in the first quarter and Russia 4.9 per cent. Why do you feel there is an alarming situation in India?
The recent economic slowdown has been driven by a combination of cyclical and structural factors. The structural challenges surrounding a weaker investment climate are increasing the risks that India's longer-term growth potential could gradually deteriorate.