Fitch affirms India's rating at 'BBB-'; outlook negative due to Covid surge

A resurgence in Covid-19 in the country has increased downside risks to growth

Rating agency Fitch Ratings has affirmed India’s long-term foreign-currency Issuer Default Rating (IDR) at ‘BBB-’ with a negative outlook.
 
India’s rating balances a still strong medium-term growth outlook and external resilience from solid foreign reserve buffers, against high public debt, a weak financial sector, and some lagging structural factors, Fitch said.
 
The negative outlook reflects lingering uncertainty around the debt trajectory, following the sharp deterioration in India’s public finance metrics because of the pandemic from a previous position of limited fiscal headroom, it added.
 

Wider fiscal deficits, and government plans for only a gradual narrowing of the deficit, put greater onus on India’s ability to return to high levels of economic growth over the medium term to stabilise and bring down the debt ratio.

 
India’s gross domestic Product (GDP) is expected to grow 12.8 per cent in the financial year 2021-22 (FY22), and will moderate to 5.8 per cent in FY23, Fitch said.
 
The Indian economy is estimated to have contracted by 7.5 per cent in FY21. However, a recent surge in coronavirus cases poses increasing downside risks to the FY22 outlook.
 
This second wave may delay the recovery, but is unlikely to derail it. In particular, the strong rebound in H2FY21 and ongoing policy support underpin our expectations of recovery.
 
“We expect pandemic-related restrictions to remain localised and less stringent than the national lockdown imposed in [Q2FY21], and the vaccine rollout has been stepped up,” it added.

 
Fiscal metrics have deteriorated sharply in the context of the macroeconomic shock and efforts to support health outcomes and the economic recovery. We estimate a general government deficit of 14 per cent of GDP in FY21 (excluding divestment), up from 7.3 per cent in FY20, Fitch said.
 
Notably, part of the increase in the FY21 deficit (around 1.5 per cent of GDP) reflects increased transparency on off-Budget spending.
 
The government is repaying loans to the Food Corporation of India from the National Small Savings Fund to keep such spending within the allocated range, Fitch added.

S&P forecasts 11% growth for India

 
S&P Global Ratings on Thursday said the Indian economy is projected to grow at 11 per cent in the current fiscal, but flagged the “substantial” impact of broader lockdowns on the economy. In its report on Asia-Pacific Financial Institutions, S&P said the control of Covid-19 remains a key risk for the economy. New infections have spiked in recent weeks and the country is in the middle of a second pandemic wave.