Business Standard

Rating firms see more gloom; Fitch warns of downgrade

Despite Centre's measures to contain market mayhem, economic growth in Q1 could fall to 4.5%, lowest 3-month figures for over 4 years

BS Reporter
The government might be taking measures to address the macroeconomic woes but the worst is yet to come, rating agencies have said.

Fitch Ratings warned of a downgrade if the country is unable to meet fiscal deficit target. It said reining in the fiscal deficit at 4.8 per cent of gross domestic product (GDP) would be a difficult task. Finance Minister P Chidambaram had said a fiscal deficit at 4.8 per cent of GDP was a red line and would not be breached. But Fitch said slowing revenues would make it difficult to meet the fiscal deficit target in the year ending March 2014. The rating agency had assigned India its lowest investment grade of BBB-.

Economic growth in the first quarter of the current financial year, Moody’s Analytics, a research and analysis wing of Moody’s, said could fall to 4.5 per cent, the lowest three-month figure for over four years.  If this happens, it will be the slowest growth in any quarter after January-March 2008-09. Its report said: “The Indian economy has been steadily decelerating for the past three years and is now growing well below its trend rate.”

On the currency front, a Reuters poll of 17 economists has said the rupee is likely to weaken to 69 before rising. This means a further seven per cent fall from Monday’s closing of 64.31.

Fitch analyst Art Woo said in a teleconference on Monday the agency was monitoring India’s growth, inflation, public finances, the current account deficit (CAD) and its funding.

Last week, Fitch had said India and Indonesia were not at immediate risk of credit rating downgrades. But the rating agency warned it could act if the governments of these countries failed to calm current financial market tensions.

GDP numbers are due on Friday.

Earlier, Chidambaram had said the first quarter GDP growth would remain more or less flat. India’s economy grew 5.4 per cent in the first quarter of 20012-13 and sub-five per cent in the last two quarters of the year.

Moody’s Analytics further highlighted that all three sectors of the economy have slowed. “Manufacturing is weak, construction and fixed investment are growing very slowly, exports are struggling, and even the once-strong service sector industries have cooled in the recent quarters,” said the research firm.

However, the Prime Minister’s Economic Advisory Chairman C Rangarajan exuded confidence that India might be able to contain its CAD to $70 billion in 2013-14 from $88 billion in 2012-13. This would mean a CAD of 3.7 per cent of GDP against the record 4.8 per cent in 2012-13.
 

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Aug 27 2013 | 12:48 AM IST

Explore News