India's medium-term GDP growth outlook may be negatively

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NEW DELHI, June 18 (Xinhua) -- Credit rating agency Fitch Thursday said it revised its

 outlook on India to "negative" from "stable" and affirmed the rating at "BBB-", the lowest

 investment grade.

"Fitch Ratings has revised the Outlook on India's Long-Term Foreign-Currency Issuer

 Default Rating (IDR) to Negative from Stable and affirmed the rating at 'BBB-'," Fitch said.

According to the agency, the coronavirus pandemic has significantly weakened India's

 growth outlook for this year and exposed the challenges associated with a high public-debt

 burden.

"Fitch expects economic activity to contract by 5 percent in the fiscal year ending March 2021

 (FY21) from the strict lockdown measures imposed since 25 March 2020, before rebounding

 by 9.5 percent in FY22. The rebound will mainly be driven by a low-base effect. Our forecasts are subject to considerable risks due to the continued acceleration in the number of new COVID-19 cases as the lockdown is

 eased gradually," it said.

However, the agency said it remains to be seen whether India can return to sustained growth

 rates of 6 percent to 7 percent as previously estimated, depending on the lasting impact of

 the pandemic, particularly in the financial sector.

"The humanitarian and health needs have been pressing, but the government has shown

 expenditure restraint so far, due to the already high public-debt burden going into the crisis,

 with additional relief spending representing only about 1 percent of GDP by our estimates

," the agency said.

"Most elements of an announced package totalling 10 percent of GDP are non-fiscal in

 nature. Some further fiscal spending of up to 1 percentage point of GDP may still be

 announced in the next few months, which was indicated by a recent announcement of

 additional borrowing for FY21 of 2 percent of GDP, although we do not expect a steep rise in

 spending."

The rating agency said fiscal metrics have deteriorated significantly, notwithstanding the

 government's expenditure restraint, due to the impact of the severe growth slowdown on

 revenue, the fiscal deficit and public-sector debt ratios.

Fitch expects general government debt to jump to 84.5 percent of GDP in FY21 from an

 estimated 71.0 percent of GDP in FY20.

"This is significantly higher than the median of 42.2 percent of GDP for the 'BBB' category in

 2019, to which FY20 corresponds, and 52.6 percent 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.

As per Fitch, India's medium-term GDP growth outlook may be negatively affected by

 renewed asset-quality challenges in banks and liquidity issues in non-banking financial 

companies (NBFC).

The financial sector, it said, was already facing weak business and consumer confidence

 before the crisis and authorities had to deal with some high-profile cases over lapses in

 governance.