Fitch Ratings Thursday maintained its long-term foreign-currency issuer default rating for India at BBB- but revised its outlook to negative from stable, citing the fallout on the country's economy and finances from the COVID-19 crisis.
Fitch, in a ratings update, said its forecasts for India's economy face "considerable risks due to the continued acceleration in the number of new COVID-19 cases" as the government eases the lockdown measures it instituted in March. Fitch forecasts a 5% drop in economic activity for the fiscal year ending March 2021 and a 9.5% rebound the following year.
"It remains to be seen whether India can return to sustained growth rates of 6% to 7% as we previously estimated," the Fitch update said. The outlook will depend "on the lasting impact of the pandemic, particularly in the financial sector."
Fitch noted that hefty outstanding official debt — likely to jump to 84.5% of GPD by March 2021 from 71% as of March 2020 — had limited the government's response to India's humanitarian and health crisis to an estimated 1% of GDP.
India's debt level remains significantly above the median 52.6% for countries Fitch rated as BBB as of March 2020, the ratings agency said.
"We do not expect a steep rise in spending," the update said.
Fitch said a "structurally weaker real GDP growth outlook due to continued financial sector weakness" or lagging reform could lead to negative rating action.
A credible plan to reduce government debt after the pandemic or a pickup in investment and growth rates over the medium term, meanwhile, would work in India's favor in terms of a potential upgrade, Fitch said.