Text size:

  • Small
  • Normal
  • Large

India faces US tapering risks despite narrowing current account deficit, Fitch says

India may be narrowing its current account deficit but it still faces the risk of significant pressures from the expected tapering of the United States Federal Reserve’s stimulus programme, Fitch Ratings says.

India may be narrowing its current account deficit but it still faces the risk of significant pressures from the expected tapering of the United States Federal Reserve’s stimulus programme, Fitch Ratings says.

“A combination of measures to curb the import of gold, a weaker exchange rate and softer demand is narrowing the current account deficit,” the credit ratings agency said in a report.

The current account is a measure of a nation’s finances that combines the balance of trade, cash transfers and payments to investors.

Fitch forecasts that India’s current account deficit will decline to 3.1 per cent of GDP in the current financial year, compared to 4.8 per cent last year.

“This fall, however, will not be enough to shield India from further pressures related to the eventual commencement of Fed tapering,” it added.

Expectations of tapering in the US earlier this year led to investors pulling out funds from emerging market and played a major role in the rupee’s decline to record lows over the summer.

“The sharp depreciation of the rupee indicates that India’s economy is still in the middle of a difficult adjustment process,” said Fitch. “India was not the only large emerging market with a significant current account deficit to face heavy capital outflows as prospects over imminent Fed tapering grew, although the associated effects of a weaker exchange rate have placed the economy under more pressure.”

Fitch however said that the “spill-over effects of a significantly weaker rupee have not hurt India’s sovereign creditworthiness”.

Agriculture and exports had remained resilient and were helping to “cushion the economy”, it added.

But the country’s “modest economic recovery” was likely to continue to hurt the banking sector, “which is facing a combination of weakening asset quality, eroding profit and declining capital”.

Fitch’s sovereign rating for India is BBB-, the lowest investment grade rating. In June, it revised its outlook for India to “stable” from “negative”.


Back to the top

More articles

Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 A sign points the way to an outdoor market popular with German visitors on the Polish side of the German-Polish border. Sean Gallup / Getty Images

In pictures: A decade since the European Union went east

May 1 will mark 10 years since the European Union expanded east, taking in countries like Poland, the Czech Republic and the Baltic states as new members. And though the border region between Germany and Poland is flourishing with trade and cultural exchange, the open border has also brought a sharp rise in crime.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.


To add your event to The National listings, click here

Get the most from The National