Fitch Ratings on Thursday revised downward its rating outlook for India to negative from stable while retaining its sovereign rating at the lowest investment grade of ‘BBB-‘, citing increasing risk to the country’s growth and debt outlook.
While all three rating agencies have the lowest investment grade rating for India, Fitch and Moody’s Investors Service have negative outlook while S&P Global Ratings has stable outlook.
“The coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high public-debt burden. Fitch expects economic activity to contract by 5% in the fiscal year ending March 2021 (FY21) from the strict lockdown measures imposed since 25 March 2020, before rebounding by 9.5 per cent in FY22,” Fitch said in a statement.
The rebound will mainly be driven by a low-base effect, it said. “Our forecasts are subject to considerable risks due to the continued acceleration in the number of new COVID-19 cases as the lockdown is eased gradually. It remains to be seen whether India can return to sustained growth rates of 6 per cent to 7 per cent as we previously estimated, depending on the lasting impact of the pandemic, particularly in the financial sector,’ it said.
The rating agency said India’s fiscal metrics have deteriorated significantly, notwithstanding the government’s expenditure restraint, due to the impact of the severe growth slowdown on revenue, the fiscal deficit and public-sector debt ratios.
‘Fitch expects general government debt to jump to 84.5 per cent of GDP in FY21 from an estimated 71.0 per cent of GDP in FY20. This is significantly higher than the median of 42.2 per cent of GDP for the ‘BBB’ category in 2019, to which FY20 corresponds, and 52.6 per cent for 2020. The medium-term fiscal outlook is of particular importance from a rating perspective, but is subject to great uncertainty and will depend on the level of GDP growth and the government’s policy intentions,’ it added.
