After Standard & Poor‟s move on 25 April, Fitch Ratings has followed suit, revising India‟s outlook to Negative from Stable, while reaffirming the long-term rating at BBB-. The rationale for downgrading the outlook is the limited progress on fiscal consolidation and risks to India‟s medium-term growth outlook .
Fitch expects India‟s fiscal deficit to be higher at 5.6-5.9% of GDP in FY13 (year ending March 2013) compared with the budgeted 5.1%. In addition, it sees the risk that “India's medium- to long-term growth potential will gradually deteriorate if further structural reforms are not hastened.
None of the factors that Fitch highlighted is new and we concur that the onus is now on the government. The government needs to cut down its expenditure on subsidies immediately in order to crowd in private investment, suppress demand pressures and pull out the country from the current spiral of stagflation
