Fitch Ratings has said that the Indian government has less fiscal room to support the economy compared to many of its peers and the country’s credit profile would weaken if a wider fiscal deficit increases the debt-GDP ratio. Fitch Ratings Director (Sovereign Ratings) Thomas Rookmaaker said India’s debt-to-GDP ratio may rise to 76% from 70% currently due to wider fiscal deficit and low economic growth. Further, he said economic activity in India has been hit hard by the COVID-19 pandemic, as in many other countries, especially those that have imposed lockdowns.
He said ‘our FY21 growth projection for India of 2% is subject to a high degree of uncertainty, stemming from the length of the lockdown period, the government’s and RBI’s policy response, and the evolution of the global pandemic itself.’ Earlier this month, Fitch had projected India’s FY21 GDP growth at 2% - the slowest since the economy was liberalised 30 years back, joining a chorus of international agencies that have made similar cuts in growth estimates amid the coronavirus crisis.
Rookmaaker said extraordinary measures have been taken in many countries, including strong fiscal responses to provide relief to those most affected by the pandemic. Besides, he said the government’s restraint so far in providing fiscal stimulus has helped avoid a further rise in the government debt ratio. However, increase in the debt ratio may be inevitable if the economic situation continues to deteriorate.
