Fitch Ratings on Tuesday said India’s sovereign rating could come under pressure if there is further deterioration in the country’s fiscal outlook as a result of lower growth or fiscal easing because of the Covid-19 pandemic.

It projected India’s debt to GDP ratio to rise to 77 per cent in the current fiscal, up from 70 per cent in 2019-20, assuming that economic growth slows and fiscal deficit widens.

Fitch also said that given the extended lockdown till May 3, India is likely to announce further fiscal easing to support growth, and its assessment of India’s rating in such a case would be guided by the judgement of its probable medium-term fiscal path in the post-crisis environment.

“Further deterioration in the fiscal outlook as a result of lower growth or fiscal easing could pressure the sovereign rating in light of the limited fiscal headroom India had when it entered this crisis,” Fitch said in a statement.

Fitch had in December 2019 reaffirmed India’s BBB- rating with a stable outlook. It 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.

This “will colour our assessment of any official commitment to tighten fiscal policy over the medium term”, it said. The government has overshot the fiscal deficit estimate of 2019-20 fiscal. It had originally pegged deficit at 3.3 per cent of the gross domestic product (GDP) at the time of presentation of the Union budget in July last year but, in revised estimates, the deficit is pegged higher at 3.8 per cent.

Forecast hacked

Moody’s Investors Service on Tuesday slashed India's growth forecast to 0.2 per cent for the 2020 calendar year from the earlier projection of 2.5 per cent released in March. Fitch has cut its economic growth forecast for India to 0.8 per cent for this fiscal year.