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Fitch lowers India’s credit rating to negative

The global rating agency Fitch on Monday lowered India's credit rating outlook to negative, citing corruption, inadequate reforms, high inflation and slow growth as reasons for the revision. India faces an 'awkward combination' of slow growth and elevated inflation, Fitch said, adding that the country 'also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms'.

Standard and Poor's had in April lowered India's rating outlook to negative from stable. It also warned on 11 June that the country may be the first in the BRIC grouping to falter and its sovereign credit rating may slip below investment grade.

'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, including measures to enhance the effectiveness of the government and create a more positive operational environment for business and private investments,' Fitch said.

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 the state governments, it said. The economic growth of India fell to nine-year low of 5.3 per cent for the three months ended March 2012, while the overall growth for 2011-12 stood at 6.5 per cent. The fiscal deficit climbed to 5.9 per cent of GDP in 2011-12, against a target of 4.6 per cent, largely reflecting an overshoot in subsidy spending.

For the current fiscal, the government has pegged fiscal deficit at 5.1 per cent of GDP against 5.9 per cent in the last fiscal.

The government has repeatedly delayed reforms to the tax and subsidy systems, it said, adding, the confluence of weaker economic growth and a large subsidy bill means India will likely miss its 5.1 per cent of deficit target for 2012-13.

Fitch, however, has retained the India's sovereign rating at BBB-, a notch above the speculative grade.
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