Fitch downgrades India's outlook to 'negative'

India factory The pace of India's economic growth has been slowing in recent months

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Ratings agency Fitch has cut its outlook for the Indian economy to negative, saying the country's growth faces "heightened risks".

Fitch warned India's growth potential "will gradually deteriorate if further structural reforms are not hastened".

It also added that the government had made little progress on reducing its deficit.

The downgrade comes just days after Standard & Poor's warned that India could lose its investment grade status.

"India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms," Fitch said in a statement late on Monday.

Double whammy

India's economy has been going through a rough patch.

It expanded at an annual rate of 5.3% in the first quarter, the slowest pace in nine years. There are fears that growth may slow further in the near term amid increased global volatility.

To make matters worse, consumer prices in the country have remained stubbornly high, making it difficult for the central bank to introduce measures to boost spending.

On Monday, the Reserve Bank of India (RBI) left its key interest rate unchanged despite pressure on it to lower borrowing costs.

It cited high inflation as the key reason behind its decision.

Analysts said that given these conditions, India's policymakers needed to introduce more reforms to sustain growth.

"There is an even greater onus on effective government policies and reforms that would ensure India can navigate the turbulent global economic and financial environment and underpin confidence in the long-run growth potential of the Indian economy," said Art Woo, Director in Fitch's Asia-Pacific Sovereign Ratings group.

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