New Delhi, Jun 10 (IANS): S&P Global Ratings on Wednesday maintained India's sovereign credit ratings.

The ratings agency affirmed its 'BBB-' long-term and 'A-3' short-term unsolicited foreign and local currency ratings on India.

Besides, S&P Global Ratings said India's outlook on the long-term rating is stable.

"The stable outlook reflects our expectation that India's economy will recover following the containment of the Covid-19 pandemic, and the country will maintain its sound net external position," the ratings agency statement said.

"The stable outlook also assumes that the government's fiscal deficit will recede markedly following a multi-year high in fiscal year 2021 (ending March 31, 2021)."

In terms of the rating rationale, the agency said that it reflects the country's above-average real GDP growth, sound external profile, and evolving monetary settings amongst others.

These are balanced against vulnerabilities stemming from the country's low per capita income and consistently elevated fiscal deficits that contribute to high general government debt, net of liquid assets, it said.

"India's economy will contract in fiscal 2021, largely owing to the impact of the Covid-19 pandemic. We forecast a 5 per cent decline in real GDP growth, which would be the worst economic performance in recent history," the statement said.

"The global economic downturn resulting from the pandemic, along with strict domestic measures aimed at containing the spread of the local epidemic, are hitting the economy hard, and will likely result in a significant fall in activity in the first quarter of this fiscal year (i.e., three months from April 1, 2020)."

As per the statement, productive capacity has been severely disrupted during this period, and millions of workers have left their jobs to return home, sometimes crossing the country to do so.

"India's labour markets have therefore weakened dramatically, and may take some time to heal," the statement said.

The development comes after Moody's Investors Services downgraded India's sovereign ratings as it sees challenges piled up on the country's policymaking institutions to mitigate the risks of a sustained period of relatively low growth.

Consequently, Moody's downgraded India's foreign currency and local currency long-term issuer ratings to Baa3 from Baa2.