Moody's Investors Service said on Friday that an upgrade of its India's rating at Baa2 negative is unlikely in the near term due to economic shock triggered by coronavirus outbreak, weak policy implementation and high debt levels.
"The negative outlook reflects increasing risks that economic growth will remain significantly lower than in the past," it said in research as part of its regular update.
"This is in light of the deep shock triggered by the coronavirus outbreak, and partly reflects lower government and policy effectiveness at addressing longstanding economic and institutional weaknesses, leading to a gradual rise in the debt burden from already high levels," it said.
However, said Moody's, India's credit profile is supported by its large and diverse economy and stable domestic financing base. This is balanced against high government debt, weak social and physical infrastructure, and a fragile financial sector which face further pressures amid the coronavirus outbreak.
"The shock will exacerbate an already material slowdown in economic growth, which has significantly reduced prospects for durable fiscal consolidation," it said.
India's Baa2 government bond rating reflects 'a2' economic strength, 'baa3' institutions and governance strength, 'b1' fiscal strength and 'ba' susceptibility to event risk, it added.
Moody's expects India's FY21 GDP growth at zero per cent and FY22 growth at 6.6 per cent.
The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and financial market turmoil are creating a severe and extensive economic and financial shock.
"We expect a sharp slowdown in growth with real GDP growth averaging 0.2 per cent in the 2020 calendar year, down from our previous forecast of 2.5 per cent," said Moody's.
"Lower growth and government revenue generation, coupled with coronavirus-related fiscal stimulus measures, will lead to higher government debt ratios which we project to rise to around 81 per cent of GDP over the next few years."
Moody's said it expects the economic shock from coronavirus outbreak and the fiscal policy response to result in significant slippage from the central government's budgeted deficit target of 3.5 per cent of GDP for fiscal 2020.
Further increases in fiscal expenditure to support the economy, combined with weaker overall revenue and disinvestment receipts, are likely to drive the Central government deficit to around 5.5 per cent of GDP in fiscal 2020, it added.
( With inputs from ANI )