Fitch revises India's outlook to negative

Fitch Ratings on Thursday revised India's outlook to negative from stable and affirmed the sovereign rating at 'BBB-'.

Accordingly, Fitch said the revision of the outlook to negative on India's Long-Term IDRs reflects concerns over economic contraction that the country is expected to encounter due to Covid-19 pandemic.

“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 Ratings said.

Fitch expects economic activity to contract by 5 per cent in the fiscal year ending March 2021 (FY21) from the strict lockdown measures imposed since March 25, 2020, before rebounding by 9.5 per cent 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,” the ratings agency said.

“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.”

According to Fitch, the humanitarian and health needs of the country have been pressing, but the government has shown expenditure restraint so far, due to the already high public-debt burden going into the crisis, with additional relief spending representing only about 1 per cent of GDP “by our estimates.”

As per Fitch's report, most elements of an announced package totalling 10 per cent of the GDP are non-fiscal in nature.

“Some further fiscal spending of up to 1 percentage point of GDP may still be announced in the next few months, which was indicated by a recent announcement of additional borrowing for FY21 of 2 per cent of GDP, although we do not expect a steep rise in spending,” it said..