From the strict lockdown measures imposed since March 25, 2020, Fitch said, it expects economic activity in the country to contract 5 percent in the current fiscal year.
Credit rating agency Fitch on Thursday revised its outlook on India to “negative” from “stable” and affirmed the rating at “BBB-” – the lowest investment grade. The coronavirus pandemic has severely hampered India’s growth. It has exposed the challenges associated with a high public-debt burden, Fitch clarified. The change in Fitch’s outlook on India’s growth comes days after another rating agency, S&P, also retained the country’s sovereign rating at the “BBB-” with a stable outlook.
From the strict lockdown measures imposed since March 25, 2020, it said, it expects economic activity in the country to contract 5 percent in the current fiscal year. Fitch, however, reiterated that gross domestic product (GDP) in the country will grow 9.5 percent in the next fiscal year (2021-22), with the rebound mainly driven by a low-base effect.
“The humanitarian and health needs 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 percent of GDP by our estimates. Most elements of an announced package totaling 10 percent of GDP are non-fiscal in nature,” Fitch elaborated.
“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 percent of GDP, although we do not expect a steep rise in spending,” Fitch added.
The government debt, according to the agency, is expected to jump to 84.5 percent of GDP in the current fiscal year, from an estimated 71.0 percent of GDP in 2019-20. For the “BBB” category, which represents good credit quality, this is significantly higher than the median of 42.2 percent of GDP. Fitch’s “BBB” rating shows that expectations of default risk are currently low.
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