Finance ministry officials will likely meet senior executives of Fitch Ratings this week and impress upon the global agency to upgrade its India rating, sources told FE. Economists expect the agency to at least raise its India outlook from “negative” to “stable” in the wake of improving fiscal metrics and Covid vaccination drive.

In June 2020, Fitch had trimmed its India outlook to “negative”, citing a sharp Covid-induced deterioration of the country’s growth and fiscal position. However, it has retained its India rating at the lowest investment grade of BBB- for well over a decade.

The meeting with Fitch comes barely days after another global rating agency, Moody’s, revised up its India outlook to “stable” from “negative” after almost two years. S&P, which has retained a similar rating for India, said in May it saw no change in the country’s rating for the next two years.

Finance ministry officials believe India more than deserves a rating upgrade, as the economy has witnessed a “V-shaped recovery” since the second half of FY21, despite the onslaught of the second Covid wave. The economy grew 20.1% in the first quarter of this fiscal, albeit driven by base effect, and the recovery will remain strong in the coming quarters as well, official sources assert.

Senior officials will likely explain to Fitch representatives the better-than-expected improvement in key budget parametres, especially in tax collections. They will also assuage fears about India’s elevated debt level. India’s general government debt surged to about 90.6% of GDP in FY21 from 72% in FY20 (pre-pandemic year).

The Centre’s fiscal deficit is set to remain within the budgeted target of 6.8% of GDP in FY22, against 9.3% last fiscal. Gross tax collections have surged 31% in the April-August period even from the pre-pandemic (same period in FY20) level. The Centre has reined in fiscal deficit at just 31% of the full-year target in the first five months of this fiscal, the lowest in 18 years.

As such, the sovereign rating assigned to India has been out of sync with its relative standing among major economies and its strong macro fundamentals, senior government functionaries have often argued, alleging rating agencies of deep-seated bias against emerging-market economies.

Earlier this month, Fitch trimmed India’s economic growth forecast to 8.7% for FY22 from 10% announced in June but raised the projection for the next fiscal to 10%, as it argued that the second Covid wave delayed rather than derailed the economic recovery.

In its APAC Sovereign Credit Overview, the rating agency said India’s ‘BBB-/Negative’ sovereign rating “balances a still-strong medium-term growth outlook and external resilience from solid foreign-reserve buffers, against high public debt, a weak financial sector and some lagging structural factors”.

The “negative” outlook reflects uncertainty over the country’s debt trajectory following the Covid-induced deterioration in public finances, Fitch had said.