In March, the US-based rating agency forecast India’s GDP growth of 11% for the fiscal year April 2021 to March 2022.
S&P Global Ratings cut India’s GDP growth forecast for the current fiscal year to 9.8% on Wednesday, saying the second wave of COVID could derail a nascent recovery in the economy and credit conditions .
In March, the US-based rating agency predicted 11% GDP growth for India for the April 2021 to March 2022 budget, due to a rapid economic reopening and stimulus budgetary.
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 forecast for growth of 11% of GDP for this fiscal year. The timing of the peak in the number of cases, and the rate of decline that follows, motivates our considerations,” said Shaun Roache, S&P Global Ratings chief economist for Asia-Pacific. .
He said the projections assume that initial shocks to private consumption and investment spill over into the rest of the economy. For example, lower consumption will mean fewer hires, lower wages and a second blow to consumption, he noted. According to official estimates, the Indian economy contracted by 8% in fiscal year 2020-2021, which ended on March 31, 2021.
“Our moderate scenario suggests a GDP impact of around 1.2 percentage points. This means an annual growth of 9.8% for fiscal 2022 (the year ending March 31, 2022). This compares to our baseline forecast of 11% growth for the period, set for March 2021. In the severe scenario, the hit is 2.8 percentage points, with growth of 8.2%, â€S&P said.
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 presented a risk to India’s growth forecast, but double-digit GDP growth is likely. in 2021 given the low level of activity last year.
In its report titled “ Second Wave COVID Could Derail India’s Budding Recovery, ” S&P said it believed the possibility of the government imposing more local lockdowns could thwart what looked like a rebound robust corporate profits, liquidity, access to finance, government revenues profitability of the banking system.
“India’s second wave of COVID could derail a strong recovery in the economy and credit conditions. The country’s rate of new daily infections continues to soar, accounting for nearly half of the world’s cases, overwhelming the Indian health system, â€he added.
National banks continue to face high levels of systemic risk. Under the moderate downside scenario, Indian banking system lending weakness is expected to remain high at 11-12% of gross lending.
Credit losses will remain high in FY2022, at 2.2% of total loans, before recovering to 1.8% in FY2023, S&P said.
Show us some love and support our journalism by becoming a member of TNM – Click here.
