Fitch Ratings revises India outlook to negative; affirm rating at BBB-

Fitch Ratings Inc today has revised its 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 that Coronavirus pandemic has significantly weakened India's growth outlook for this year and exposed the challenges associated with a high public-debt burden. Further, it expects around 5 per cent fall in India’s economic activity due to the nationwide lockdown announced by the government to contain the virus. However, it estimates the economy to bounce back in FY22 with 9.5 per cent growth mainly on account of lower base.

The rating agency said that the government holding onto its expenditure amid COVID-19 pandemic, owing to already high public-debt burden, is going into the crisis. According to the rating agency, the additional relief spending represents only around 1 per cent of GDP but most of the part of the stimulus is non-fiscal in nature. Further, it expects another 1 per cent of GDP fiscal spending to be announced in the coming months.

Fitch Ratings Inc expects the general government debt to jump to 84.5 per cent of GDP in FY21 from an estimated 71 per cent of GDP in FY20. Besides, Fitch Ratings believe that due to the government capital injections, the banking sector's non-performing loan (NPL) ratio might improve 9 per cent in FY20 from 11.6 per cent, two years ago.