India vulnerable to high oil prices, expect CAD to hit 3% of GDP this fiscal: Fitch Ratings

Fitch Ratings has maintained India's credit rating unchanged for 12th year in a row. Thomas Rookmaaker, director -sovereign ratings at Fitch Ratings, spoke to CNBC-TV18 about the rating rationale and outlook on the country's economy.

“It is good to realise that the growth outlook for India is very strong. That 7.8 percent is a forecast that we prepared in the context of our global economic outlook, which was published a month or so ago and in the meantime, risks have been building including banking sector and that could imply that a growth will slow down a bit this year but I think it will be good to wait until we see the print of the second quarter of the fiscal year to decide what our next forecast for this fiscal year is going to be,” Rookmaaker said on Friday.

Talking about the growth trajectory and risks ahead, he said, “I think it is good to mention that even if it comes down at almost 7.5 percent on average in the coming three years, India stands out, it is the highest among the triple B category peers. There is also this strong reform drive that we are seeing, it is starting to bear fruits. At the same time, there are negative developments as well since the last ratings six months ago and those include problems in the banking sector, the public spat between the government and the Reserve Bank of India (RBI), some fiscal pressures in an already relatively unfavourable situation and also weakening of India’s external position, which for the past couple of years was the strength for India but now is less of a strength,” he added.

On the fiscal target front, Rookmaaker said, “It is not that we don’t expect it to be met. I think we mentioned that it is going to be – like last year - difficult for the government to meet its fiscal target and the reason for it is the revenues, which are a bit disappointing relative to the targets and also spending pressures, which we expect to continue in the run up to the elections. One illustration is the cut in the excise duty also which doesn’t have a big effect on the fiscal position of the central government but it all adds up and in February, we will see where this is going to end.”

Talking about the oil prices and how that impacts India's fiscal situation, he said, “India is vulnerable to high oil prices. Although, it has come down a bit, there is still quite a risk. So we expect the current account deficit (CAD) to reach roughly 3 percent of GDP this fiscal year and also the next fiscal year,” he added.