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UPDATE: Fitch revises India's outlook to negative

Affirms rating at BBB-, cuts growth target to 6.5% for FY13

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Ratings has revised India's outlook to negative from stable on account of limited progress on fiscal consolidation and heightened risks to growth due to tardy pace of structural reforms.

It reaffirmed Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' and Short-Term Foreign Currency at 'F3'.

India's Country Ceiling is also affirmed at 'BBB-', Fitch said in a statement today.

The outlook revision reflects heightened risks that India's medium- to long-term growth potential will gradually deteriorate if further structural reforms are not hastened.

These reforms include measures to enhance the effectiveness of the government and create a more positive operational environment for business and private investments.

The negative outlook also reflects India's limited progress on fiscal consolidation and, in particular, on reducing the central government deficit despite improvement in the financial health of state governments.

"Against the backdrop of persistent pressures and weak public finances, there is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy," said Art Woo, Director in Fitch's Asia-Pacific Sovereign Ratings group.

The rating affirmation reflects India's diversified economy and its high domestic savings which reduce reliance on foreign investors for private investment and fiscal funding. The Indian government is able to issue long-term debt at a low cost in its own currency.

The rating agency has revised down its forecasts for real growth following the sharp loss of domestic economic momentum coupled with increasing concerns over the health of the global economy.

Real GDP is now forecast to grow 6.5% and 7.0% in FY13 and FY14, down from previous forecasts of 7.5% and 8.0% respectively.
India’s net external debt is very low and still high foreign exchange reserves of the Reserve Bank of India (RBI) provide a cushion against potential external shocks. The underlying drivers of the last decade of rapid economic growth remain in place - a fast growing pool of educated workers and an innovative private services sector.

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