Another rating downgrade, Fitch revises India's outlook to negative

Fitch expected economic activity to contract by 5 per cent in FY21 due to the strict lockdown measures imposed since March 25, before rebounding by 9.5 per cent in FY22.

Fitch Ratings on Thursday revised India's outlook to 'negative' from 'stable', stating that the coronavirus pandemic has significantly weakened the country's growth prospects for the year and exposed the challenges associated with a high public-debt burden.

The move comes after another rating agency Moody's earlier this month downgraded India's sovereign rating by a notch to lowest investment grade of 'Baa2' for the first time in 22 years.

"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-'," the rating agency said in a statement.

Fitch expected economic activity to contract by 5 per cent in the fiscal year ending March 2021 (FY21) due to the strict lockdown measures imposed since March 25, before rebounding by 9.5 per cent in FY22.

"The coronavirus pandemic has significantly weakened India's growth outlook for this year and exposed the challenges associated with a high public-debt burden.

“The rebound will mainly be driven by a low-base effect," it said.