India’s sovereign rating to remain unchanged despite pandemic impact: S&P

India’s sovereign rating will remain unchanged at the current level of BBB- for the next two years despite the potential adverse impact of surging pandemic on its economy, said a top official at S&P Global Ratings on Friday.

However, the country would witness a slightly faster pace of growth in the next couple of years, effectively supporting the sovereign rating, he said.

“India’s sovereign rating remains stable,” said Andrew Wood, director, Asia Pacific Sovereign Ratings, S&P Global Ratings.

“We do not expect a change in rating level over the next two years. Currently that remains the case.”

“Of course, there are going to be some near-term ramifications for India’s economy stemming from the severe second wave of COVID-19 and that may peep through into our sovereign-credit metrics,” he said.

Maintaining India’s real GDP growth forecast at 11% for this fiscal, Mr. Wood said, “It is a baseline scenario with some downside risk. But, if we do see a number creeping lower, most likely it will not go too far in our current downside scenario.”

He said India in all likelihood will have positive growth this fiscal year but there is potential for a lower rate of growth owing to the current health crisis.

However, he said, “We would more likely see a slightly faster pace of growth in the ensuing two years.”

Addressing a webinar on the topic ‘What a drawn out second COVID wave means for India,’ organised by S&P Global Ratings Mr. Wood said the second wave would not have any major impact on the government’s fiscal position in the case of a moderate downside scenario.

There could be upside pressure on fiscal deficit as revenue generation could be weaker but despite this, the government’s debt stock would remain roughly stable at just above 90% of the GDP.

“In the severe scenario, there could be more additional fiscal spending from the government and revenue growth would be weaker. This would mean that the debt stock would stabilise in the next fiscal,” he said.

Earlier, S&P, in a report, stated that India’s nascent economic recovery through March solidified government revenue. But the rapidly developing health crisis could derail this progress.

Record case numbers, limited capacity in the healthcare system, and localised lockdowns aimed at curtailing the spread of the virus would likely take a toll on household consumption and retail activity.

“Should the outbreak worsen over the coming months, or if case numbers plateau at a very high level, this would elevate risks to India’s economic and fiscal recovery. This assumes that the health system faces prolonged capacity constraints,” the report said.

The second wave should not hit the economy as hard as the first wave did in the first quarter of fiscal 2021, it said.

Should there would be no nation wide lockdown, the impact on the economy would be limited compared with the effects of lockdowns one year ago, it added.

“However, it is notable that the pandemic is more than a year old and is only getting stronger. The severity of the crisis is challenging the country’s fiscal settings, which were already weak before COVID struck,” according to the S&P Global report.

Over the next two to three years, fast nominal GDP growth would be critical in arresting the rise of the government debt to GDP ratio. This ratio may only stabilise the following fiscal year in the severe downside scenario, it said.

“Our moderate scenario suggests a hit to GDP of about 1.2 percentage points,” according to the report. “This means full-year growth of 9.8% for fiscal 2022. This compares with our baseline forecast of 11% growth for the period, set in March 2021. This would see a recovery taking hold again later in the year,” the report said.

In the severe scenario, the hit is 2.8 percentage points, with growth of 8.2%, it added.

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Printable version | Jun 15, 2021 7:38:19 PM |

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