American agency Fitch Ratings on Thursday revised its outlook on India’s economy from stable to negative, attributing the country’s weakened growth to the coronavirus outbreak.

“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 firm said in a statement. “Fitch expects economic activity to contract by 5% in the fiscal year ending March 2021 (FY21) from the strict lockdown measures imposed since 25 March 2020, before rebounding by 9.5% in FY22.”

The credit ratings agency said that the rebound will be caused due to a “low-base effect”, adding that its predictions are subject to risks amid increasing coronavirus cases following an ease on lockdown restrictions. “It remains to be seen whether India can return to sustained growth rates of 6% to 7% as we previously estimated, depending on the lasting impact of the pandemic, particularly in the financial sector,” it added.

The agency also flagged the “geopolitical risk” related to border tensions with India’s neighbours, and said that this was recently highlighted by intensified tensions with China. India’s relations with Pakistan have been strained since the abrogation of the special status of Jammu and Kashmir last August and the amendments to the Citizenship Act, it added.

“A stronger focus by the ruling Bharatiya Janata Party on its Hindu-nationalist agenda since the government’s re-election in May 2019 risks becoming a distraction for economic reform implementation and could further raise social tensions,” Fitch said.

On May 26, the agency predicted that the Indian economy will contract by 5% in the ongoing financial year due to the magnitude of the lockdown-related shock to global activity during the pandemic. It was a sharp decline from the growth forecast of 0.8% by the global rating agency in late April – a revision from the 2% that was projected just three weeks ago at the time.

Meanwhile, the Asian Development Bank on Thursday said that developing Asian countries will “barely grow” in 2020, and the Indian economy is predicted to contract by 4% this fiscal year due to the pandemic.

“Developing Asia will barely grow in 2020 as containment measures to address the coronavirus disease (COVID-19) pandemic hamper economic activity and weaken external demand, according to a new set of forecasts from the Asian Development Bank (ADB),” the statement read. “Developing Asia” is a group of more than 40 countries that are members of the bank.

“Economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic this year even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario,” said ADB’s Chief Economist Yasuyuki Sawada. “While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year, and this will not be a V-shaped recovery. Governments should undertake policy measures to reduce the negative impact of COVID-19 and ensure that no further waves of outbreaks occur.”

Indian economic growth

A growing list of agencies have downgraded India’s growth forecasts for the current financial year. On June 8, the World Bank said that the Indian economy will contract by 3.2% in the financial year of 2020-’21 because of the lockdown to control the coronavirus pandemic.

In May, credit rating agency Moody’s Investors Service said it estimated India’s Gross Domestic Product growth to “hit zero” in the 2020-’21 financial year due to the lockdown to combat the coronavirus pandemic. In the same month, American credit rating agency Fitch Ratings forecast that the Indian economy will contract by 5% during 2020-’21.

In April, the International Monetary Fund had cut its growth projection for India to 1.9% from the earlier estimated 5.8% for the financial year 2020-’21.

India’s economic growth rate stood at 3.1% for the fourth quarter of 2019-’20, according to data the government released on May 29. In the October to December 2019 quarter, the country’s economic growth stood at 4.7% – a seven-year low. However, the final figures released for the third quarter showed that India’s GDP grew at 4.1% during October to December last year.