Global rating agency Moody’s revised its forecast of India’s growth to a double digit contraction at 11.5% during the current fiscal year, down from the -4% it had estimated in July.

At the same time, it raised its expectations of the economy’s performance in the coming fiscal to 10.6% from 8.7% earlier, but said this was largely due to the strong statistical base effect, in a report on Friday.

Moody’s cited the severe impact of the lockdown, realised in the 23.9% fall in the April-June quarter gross domestic product (GDP), and the continued rise in covid-19 cases as the reason for the revision.

Many global institutions have downgraded their expectations since the release of the first quarter results. Investment bank Goldman Sachs projected FY21 growth at -14.8% while Japanese brokerage Nomura revised its forecast to -10.8%.

In its monthly economic review for August, the finance ministry said the worst was behind us and India was witnessing a V-shaped recovery as gauged from improvements in indicators such as the manufacturing Purchasing Managers’ Index (PMI), auto sales and railway freight since June.

While the rating agency did not take a rating action, it cautioned of India’s ‘increasingly constrained’ credit profile by a high debt burden and a weak financial system.

“The country’s policymaking institutions have struggled to mitigate and contain these risks, which have been exacerbated by the coronavirus pandemic,” it said, adding, “Further evidence that self-reinforcing economic and financial risks are rising would put downward pressure on the rating.”

On June 1, Moody’s downgraded India’s sovereign credit rating to Baa3 with a negative outlook from Baa2 pushing the country to the lowest rung of investment grade rating for all three major global rating agencies including S&P and Fitch.

The report cited the relatively high growth potential of India’s large and diversified economy and the wide and stable domestic financing base for government debt as positives for its rating profile.

Moody’s saw fiscal metrics deteriorating further as lower growth implied weaker revenue while the government’s expenditure continued to rise.

“The sharp decline in growth will result in materially weaker government revenue. Combined with increased fiscal expenditure in response to the coronavirus outbreak, this will contribute to a wider general government fiscal deficit, which we now expect to reach 12.0% of GDP in fiscal 2020,” it said.

The Centre’s deficit would touch 7.5% of GDP while the figure would be 4.5% for states, Moody’s said, pegging general government debt to hit 90.1% of GDP this fisal.