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June 18, 2020 09:57 AM

Fitch revises outlook for India to negative

Douglas Appell
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    Bloomberg
    Customers wearing protective masks wait in line at a dairy store in Mumbai.

    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.

    See more of P&I's coverage of the coronavirus
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