High government support to deal with stressed asset 'negative': Fitch
NEW DELHI: Excessive government support to banks to deal with stressed assets and loose macro economic policy that could stoke inflation would be "negative" for the Indian economy, Fitch said today.
"Further deviation of the already-high public-debt burden from the peer median, which may be caused by stalling fiscal consolidation or greater-than-expected deterioration in the banking sector's asset quality that would prompt large-scale sovereign financial support...(are) negative sensitivities," it said.
In its Asia-Pacific Sovereign Overview for April-June quarter, Fitch Ratings also said that "loose macroeconomic policy settings that cause a return of persistently high inflation and a widening current-account deficit, which would increase the risk of external funding stress" are also negative for the economy.
However, Fitch also outlined "positive sensitivities" for India which could come from fiscal initiatives that would cause the general government debt burden to fall more rapidly than expected in the medium term.
"An improved business environment resulting from implemented reforms and persistently contained inflation, which would support higher private investment and real GDP growth" would be positive, the US-based agency said.
Fitch has a 'BBB-minus', the lowest investment-grade rating on India with a 'stable' outlook.
It said demonetisation could help boost government revenue by moving economic activity from the informal to the formal sector, although withdrawal of high-value currency created a cash crunch, hurting economic activity in the short term.
With regard to reforms, Fitch said over the past year the government has succeeded in passing some big-ticket reforms in the Rajya Sabha, such as Goods and Services Tax and a bankruptcy law.
"Further deviation of the already-high public-debt burden from the peer median, which may be caused by stalling fiscal consolidation or greater-than-expected deterioration in the banking sector's asset quality that would prompt large-scale sovereign financial support...(are) negative sensitivities," it said.
In its Asia-Pacific Sovereign Overview for April-June quarter, Fitch Ratings also said that "loose macroeconomic policy settings that cause a return of persistently high inflation and a widening current-account deficit, which would increase the risk of external funding stress" are also negative for the economy.
However, Fitch also outlined "positive sensitivities" for India which could come from fiscal initiatives that would cause the general government debt burden to fall more rapidly than expected in the medium term.
"An improved business environment resulting from implemented reforms and persistently contained inflation, which would support higher private investment and real GDP growth" would be positive, the US-based agency said.
Fitch has a 'BBB-minus', the lowest investment-grade rating on India with a 'stable' outlook.
It said demonetisation could help boost government revenue by moving economic activity from the informal to the formal sector, although withdrawal of high-value currency created a cash crunch, hurting economic activity in the short term.
With regard to reforms, Fitch said over the past year the government has succeeded in passing some big-ticket reforms in the Rajya Sabha, such as Goods and Services Tax and a bankruptcy law.
