Deteriorating fiscal position of the Union government on account of increasing oil and fertiliser subsidy bill has prompted global credit rating agency Fitch to downgrade India's credit outlook from stable to negative on Tuesday.

Although the Fitch revised the outlook on Long-term Local Currency Issuer Default Rating from stable to negative, it has retained the investment grade rating at BBB-, which indicates low credit risk.

"The revision to the local currency outlook is based on the considerable deterioration in the Central government's fiscal position in 2008-09, combined with noticeable increase in government debt issuance to finance subsidies not captured in the Budget," said James McCormack, Asia Head of Sovereign Rating, Fitch.

The downgrade by Fitch is one of the main reasons for all-round selling in the stock markets.

Another global rating agency Standard and Poor's last week had said it might downgrade India's sovereign ratings, if the country's rising inflation, widening fiscal deficit and political instability continues in the longer term.

Fitch further pointed out that inflation has continued to accelerate despite steps taken by the RBI to tighten monetary policy.

It further said with inflation rate nearing 12 per cent, there could be further tightening of monetary policy in the days ahead.

Fitch has also forecast that India's economic growth rate will moderate to 7.7 per cent in 2008-09 from nine per cent last fiscal.