Outlook negative: Fitch Ratings affirms BBB- rating for India, says recent Covid-19 surge may delay GDP recovery

“However, a recent surge in coronavirus cases poses increasing downside risks to the FY22 outlook,” it said. “This second wave of virus cases may delay the recovery, but it is unlikely in Fitch’s view to derail it,” the agency added.

Fitch Ratings on Thursday affirmed ‘BBB-’ sovereign rating for India, saying that a recent surge in coronavirus cases may delay GDP recovery, but it won’t derail the economy. However, the agency said that the outlook was negative, reflecting lingering uncertainty around the debt trajectory.

“The negative outlook reflects lingering uncertainty around the debt trajectory following the sharp deterioration in India’s public finance metrics due to the pandemic shock from a previous position of limited fiscal headroom. 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 GDP growth over the medium term to stabilise and bring down the debt ratio,” the rating agency said.

Fitch forecasts a 12.8% recovery in GDP in the fiscal ending March 2022 (FY22), moderating to 5.8% in FY23, from an estimated contraction of 7.5% in FY21.

“However, a recent surge in coronavirus cases poses increasing downside risks to the FY22 outlook,” it said. “This second wave of virus cases may delay the recovery, but it is unlikely in Fitch’s view to derail it,” the agency added.

It expected pandemic-related restrictions to remain localised and less stringent than the national lockdown imposed in 2020, and the vaccine rollout has been stepped up.