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

Hindustan Times (Jalandhar) - - BUSINESS - Asit Ran­jan Mishra

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.


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