S&P India GDP Forecast: Second Wave of Covid Could Derail India’s Emerging Recovery; 8.2-9.8% GDP growth in different scenarios | India Business News
NEW DELHI: The second wave of Covid infections could derail a strong recovery in India’s economy and credit conditions, S&P Global Ratings said on Wednesday, projecting lower than expected GDP growth rate under different scenarios.
S&P, which in March saw the Indian economy grow 11% in the fiscal year through March 2022, saw the GDP growth rate drop to 9.8% in the “ moderate ” scenario where infections peaked in May and fell to 8.2%. percent in the “severe†scenario in which the workload would not peak until the end of June.
Just as the economy appeared to be returning to normal, India was hit by a second wave of Covid-19 infections in early April, prompting states and cities to restrict public movement and impose lockdowns, which has hit some businesses hard.
India added 382,315 cases of Covid-19 in the past 24 hours to a total of 2.06 crore, while mortality increased from a record 3,780 to 226,188, according to ministry data of Health.
“The second wave of Covid in India could derail a strong recovery in the economy and credit conditions,” S&P Global Ratings said in a note, adding that the surge in new infections, which account for almost half cases around the world, has overwhelmed the country’s health system.
The possibility of imposing more local lockdowns to close the gap could thwart what looked like a robust rebound in corporate profits, liquidity, access to finance, government revenues and the profitability of the banking system. , did he declare.
“We are looking at two scenarios to see how this could happen across industries. Our severe scenario supports new infections peak at the end of June 2021. Our second moderate scenario assumes infections peak in May,” did he declare.
“Our moderate scenario suggests a GDP impact of around 1.2 percentage points. That means 9.8% full-year growth for fiscal 2022 (the year ending March 31, 2022). severe scenario, the impact is 2.8 percentage points, with growth of 8.2%. ”
According to official estimates, the Indian economy contracted by 8% in fiscal year 2020-2021, which ended on March 31, 2021.
S&P, which currently has a “BBB-†rating on India with a stable outlook, said the depth of the deceleration in the Indian economy will determine the impact on its sovereign credit profile.
The Indian government‘s fiscal position is already strained. The general government deficit was around 14% of GDP in FY2021, with a stock of net debt of just over 90% of GDP.
“India’s second wave prompted us to reconsider our 11% GDP growth forecast for this fiscal year. The timing of the peaks of cases, and the rate of decline that follows, motivates our considerations,” said Shaun, S&P Global Ratings chief economist for the Asia-Pacific region. Roache.
Last month, another global rating agency, Fitch, projected India’s economic growth in the current budget at 12.8%, while Moody’s Investors Service also said the second wave of Covid infections featured a risk to India’s growth forecast, but double-digit GDP growth. is likely in 2021, given the low level of activity last year.
S&P said rated Indian companies are entering this second Covid wave with much improved operating and liquidity conditions compared to the first wave last year. “As such, we expect the credit profile of Indian companies to be resistant to the second wave of Covid,†he said.
S&P further stated that the second wave could jeopardize an otherwise strong recovery in Indian infrastructure and that the severe scenario, which assumes impacts on economic growth and cash flows in the infrastructure sector, poses greater risks to the industry. the decline.
Indian national banks continue to face high levels of systemic risk. Under the moderate downside scenario, lending weakness of the Indian banking system is expected to remain high at 11-12 percent of gross lending. Credit losses will remain high in FY2022, at 2.2 percent of total loans, before falling to 1.8 percent in FY2023, S&P added.
S&P, which in March saw the Indian economy grow 11% in the fiscal year through March 2022, saw the GDP growth rate drop to 9.8% in the “ moderate ” scenario where infections peaked in May and fell to 8.2%. percent in the “severe†scenario in which the workload would not peak until the end of June.
Just as the economy appeared to be returning to normal, India was hit by a second wave of Covid-19 infections in early April, prompting states and cities to restrict public movement and impose lockdowns, which has hit some businesses hard.
India added 382,315 cases of Covid-19 in the past 24 hours to a total of 2.06 crore, while mortality increased from a record 3,780 to 226,188, according to ministry data of Health.
“The second wave of Covid in India could derail a strong recovery in the economy and credit conditions,” S&P Global Ratings said in a note, adding that the surge in new infections, which account for almost half cases around the world, has overwhelmed the country’s health system.
The possibility of imposing more local lockdowns to close the gap could thwart what looked like a robust rebound in corporate profits, liquidity, access to finance, government revenues and the profitability of the banking system. , did he declare.
“We are looking at two scenarios to see how this could happen across industries. Our severe scenario supports new infections peak at the end of June 2021. Our second moderate scenario assumes infections peak in May,” did he declare.
“Our moderate scenario suggests a GDP impact of around 1.2 percentage points. That means 9.8% full-year growth for fiscal 2022 (the year ending March 31, 2022). severe scenario, the impact is 2.8 percentage points, with growth of 8.2%. ”
According to official estimates, the Indian economy contracted by 8% in fiscal year 2020-2021, which ended on March 31, 2021.
S&P, which currently has a “BBB-†rating on India with a stable outlook, said the depth of the deceleration in the Indian economy will determine the impact on its sovereign credit profile.
The Indian government‘s fiscal position is already strained. The general government deficit was around 14% of GDP in FY2021, with a stock of net debt of just over 90% of GDP.
“India’s second wave prompted us to reconsider our 11% GDP growth forecast for this fiscal year. The timing of the peaks of cases, and the rate of decline that follows, motivates our considerations,” said Shaun, S&P Global Ratings chief economist for the Asia-Pacific region. Roache.
Last month, another global rating agency, Fitch, projected India’s economic growth in the current budget at 12.8%, while Moody’s Investors Service also said the second wave of Covid infections featured a risk to India’s growth forecast, but double-digit GDP growth. is likely in 2021, given the low level of activity last year.
S&P said rated Indian companies are entering this second Covid wave with much improved operating and liquidity conditions compared to the first wave last year. “As such, we expect the credit profile of Indian companies to be resistant to the second wave of Covid,†he said.
S&P further stated that the second wave could jeopardize an otherwise strong recovery in Indian infrastructure and that the severe scenario, which assumes impacts on economic growth and cash flows in the infrastructure sector, poses greater risks to the industry. the decline.
Indian national banks continue to face high levels of systemic risk. Under the moderate downside scenario, lending weakness of the Indian banking system is expected to remain high at 11-12 percent of gross lending. Credit losses will remain high in FY2022, at 2.2 percent of total loans, before falling to 1.8 percent in FY2023, S&P added.
