Fitch Downgrades India's Credit Outlook to Negative

Bangalore: Fitch, global rating agency, downgraded India's credit outlook to negative citing corruption and lack of reforms, but the government chose to reject the observations saying they were based on old data. Fitch's move to lower the country's credit rating to negative from stable comes less than three months after rival Standard & Poor's did a similar downgrade.

Fitch ratings suggests that,  India faces an "awkward combination" of slow growth and elevated inflation as well as structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms. At this Pranab Mukherjee, the Finance Minister, said that the rating was based on the “older data” and has ignored the recent positive trends. This was the similar response that he had to the S&P ratings as well.

He “rejects” the agency’s ratings as he believes that these observations do not reflect the fundamental soundness of the Indian economy. Mukherjee made a statement saying, “While the markets had already anticipated that Fitch would revise the outlook and so there is no surprise in the announcement, it must be pointed out that Fitch has primarily relied on older data, and has ignored the recent positive trends in the Indian economy.”

Kaushik Basu, Chief Economic Advisor said that he was not surprised by the rating action. He said, “There is a herd mentality among policymakers, herd mentality among corporate. There is also little bit of herding among credit rating agencies. We were pretty much expecting Fitch to do so.” Basu also mentioned that, Fitch’s downgrading India’s credit rating outlook to negative was “herd mentality” and noted the revision which was on the expected lines.