Fitch ratings said to further damage to fiscal outlook may put pressure on India’s sovereign rating

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Fitch Ratings on Tuesday warned that deterioration in India’s fiscal outlook as a result of lower growth could put pressure on its sovereign rating at a time when the government is contemplating to announce a stimulus package for the MSMEs and informal sector.

The Indian government has extended a nationwide lockdown to 40 days until 3 May to curb the spread of the coronavirus. The stringent restrictions are imposed since 25 March, banning non-essential business and imposing strict controls on transportation. However, recently there have been some relaxations, permitting the resumption of agricultural activity and limited manufacturing activities mostly in rural areas.

Fitch said, “the government may tighten fiscal policy again once the pandemic is under control, but India’s record of meeting fiscal targets and implementing fiscal rules has been mixed in recent years, which will color our assessment of any official commitment to tighten fiscal policy over the medium term”.

Fitch-rated India at the lowest investment grade (BBB-) with a stable outlook in December last year, before the onset of the coronavirus pandemic. “The country has limited fiscal space to respond to the challenges posed by the health crisis. General government debt stood at 70% of GDP in FY20, according to our estimate, well above the ‘BBB’ median of 42%. India’s relatively robust external position supports its sovereign rating, and has helped to offset its comparatively weaker fiscal metrics,” it added.

Last week fitch degraded India’s FY21 growth from 2% to 0.8%. They slashed by saying that the depth of the global recession appears to be far more severe, cautioning that the economic collapse will lead to further downward revisions to gross domestic product (GDP) forecasts for emerging markets.

“We now expect India’s ratio of public debt/GDP to rise to over 77% of GDP in FY21 – up from a forecast of 71% when we affirmed the rating in December – and to stay on an upward track in FY22. This is based on our expectation of slower economic growth in FY21 and wider fiscal deficits, assuming that the government’s fiscal response remains restrained,” it added.

As per the experts, these crises will affect India’s growth in many ways.

 

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Jyotika Kumari
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