Fitch revises India’s outlook to negative from stable, affirms IDR at BBB
New Delhi: Fitch Ratings on Thursday revised India’s outlook to ‘negative’ from ‘stable’, owing to coronavirus pandemic that has ‘significantly weakened’ the country’s growth prospects for the year.
“Fitch Ratings has revised the Outlook on India’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the rating at ‘BBB-‘,” the rating agency said.
It added that 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 said that it 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% in FY22.
“The rebound will mainly be driven by a low-base effect. 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% to 7% as we previously estimated, depending on the lasting impact of the pandemic, particularly in the financial sector,” Fitch said in its report.
The rating agency said that it expects general government debt to jump to 84.5% of GDP in FY21 from an estimated 71.0% of GDP in FY20.
“This is significantly higher than the median of 42.2% of GDP for the ‘BBB’ category in 2019, to which FY20 corresponds, and 52.6% 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 said.
It may be recalled that rating agency Moody’s earlier this month downgraded India’s sovereign rating by a notch to lowest investment grade of ‘Baa2’ for the first time in 22 years.
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