Execution of reforms still at risk, says Fitch

 India’s reforms announced last week at first glance appear credit positive. But there is still considerable execution risk given the Congress-led coalition's divisions and recent track record of policy reversals, says Fitch Ratings.

Broader concerns regarding the weak and inconsistent regulatory framework remain. These concerns will remain material for economic performance ahead of elections in 2014, weighing on the sovereign credit profile.

Fitch assigned Negative Outlooks to India’s ‘BBB-’ ratings in June 2012. We await evidence of implementation of the measures on the ground and will also look to see how the economy reacts.

The government has increased the amount of foreign-direct investment permitted in a range of industries and, most importantly, has resolved its long-running dispute regarding multi-brand retail foreign-direct investment (FDI). This demonstrates some commitment to growth-enhancing reforms despite recent political deadlock, it said.

Fitch projects the government deficit at 5.7 per cent in the year to March 2013, missing the budget target of 5.1 per cent. Recent measures have mainly focused on economic growth and haven’t added clarity to the government’s plans regarding its own balance sheet and fiscal consolidation.

Some plans, such as asset sales, appear insufficient to reach the government’s target. Fitch believes prospects for meaningful action on fiscal consolidation before the general election in 2014 are limited.