India’s devastating Covid-19 crisis is making investors question more than ever whether after years of debt accumulation and patchy progress on reforms, a country touted as a future economic superpower still deserves its “investment grade” status.

A spate of downgrades last year had already left India’s investment grade credit ratings hanging by a thread and the severity of the current virus wave is making the main agencies, S&P, Moody’s and Fitch agitated again.

All three firms have either cut — or warned they could cut — the country’s growth forecasts in recent weeks and that government debt as a share of GDP will jump to a record 90 per cent this year.

In that respect though, the world’s second most populous country has long been an anomaly.

The median debt level for countries Fitch has in the BBB bracket — India is BBB- — and on a downgrade warning with both Fitch and Moody’s — is currently around 55 per cent and only 70 per cent even for those languishing at the lowest depths of “junk” grade.

With Covid-19 pushing up debt almost everywhere and the ratings firms signalling they will wait for this latest wave to ease before any judgements, investors who buy rating-sensitive assets like bonds are making their own calls.

“We still see India as investment grade,” said NN Investment Partners’ head of Asian debt, Joep Huntjens, who thinks the country’s economy will bounce back quickly. “But we do think there is at least a 50/50 chance that at least one rating agency downgrades, probably next year”.

With calls growing for another national lockdown to tackle the new virus surge, plenty of others are wary too.

JPMorgan says rating agencies are making “a leap of faith” by holding fire at the moment. M&G’s Eldar Vakhitov says his firm’s models have been flagging a downgrade, while UBS points out India will soon have the third highest debt level among big emerging markets after junk-rated Brazil and Argentina.

UBS analysts estimate India needs to grow at least 10 per cent a year for public debt to stabilise and come down. It hasn’t got anywhere near that since 1988, World Bank data shows.

Last year’s full lockdown saw the economy contract 24 per cent in the first quarter and Moody’s has said it expects growth to settle at around 6 per cent longer term.