Fitch Ratings revises India’s growth outlook to ‘negative’

NEWDELHI: Fitch Ratings on Thursday revised downward its rating outlook for India from stable to negative while retaining the sovereign rating at the lowest investment grade, citing increasing risk to the country’s growth and debt outlook.

All three major rating agencies now have the lowest investment grade rating for India. Fitch and Moody’s have a negative outlook while S&P Global Ratings has a stable outlook, holding that it expects the country’s economy and fiscal position to stabilise and begin to recover from 2021 onwards.

“The coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high publicdebt burden,” Fitch said.

The decision of Fitch may come as a surprise to the government as, earlier this month, the chief economic adviser in the finance ministry expressed happiness citing a report of the rating agency that said it expects the government’s debt to gross domestic product (GDP) ratio to decline in the medium term.

The Asian Development Bank (ADB) on Thursday said the Indian economy will contract by 4% in FY21 as it came to a standstill for more than two months due to the nationwide lockdown. In April, ADB projected India’s economy to grow at 4% in FY21. In FY22, the development bank expects Asia’s third-largest economy to bounce back to grow at 5% as economic activity normalises gradually. Fitch expects the Indian economy to contract by 5% in FY21 before rebounding by 9.5% in FY22, mainly driven by a low-base effect.

“Our forecasts are subject to considerable risks because of 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.

India’s fiscal metrics have deteriorated significantly because of the impact of the severe growth slowdown on revenue, the fiscal deficit and publicsector debt ratios, the rating agency said.

“Fitch 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.

If the government measures to revive growth over the medium term are successful, it could improve India’s fiscal position, Fitch said.

THE AGENCY EXPECTS ECONOMY TO CONTRACT BY 5% IN 2020-21