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S&P affirms India's BBB-minus/A-3 rating with stable outlook, projects GDP growth at 10 pc in FY22

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Business | September 25, 2020 5:42:27 PM IST
S&P Global Ratings on Friday affirmed its BBB-minus long-term and A-3 short-term unsolicited foreign and local currency sovereign ratings on India.

The outlook on long-term rating is stable, it said.

"We expect economic activity in India to begin to normalise in fiscal 2022, resulting in real GDP growth of about 10 per cent," said S&P adding that a significant proportion of this rebound will be due to very weak base in the current fiscal year.

"The Indian economy's long-term outperformance highlights its historical resilience. The country's wide range of structural trends, including healthy demographics and competitive unit labour costs, work in its favour."

These strengths will be challenged by the spread of the pandemic, financial and corporate weakness and a prolonged decline in investments.

However, said S&P, India's economy will experience a record contraction in fiscal 2021, largely owing to the global COVID-19 pandemic. India's weak fiscal settings will worsen further this year, constraining the government's ability to aid the economy.

At the same time, the country's external settings have improved, helped by the central bank's rapid accumulation of foreign exchange reserves.

"The stable outlook reflects our view that India's contraction in fiscal 2021 will be followed by a significant recovery, which will stabilise the country's broader credit profile," said S&P.

The government's ability to deliver and execute additional economic reforms, especially those that spur investment and job creation, will be important for India's ability to recover from the economic slowdown.

Nevertheless, it added, fresh fiscal revenue generating measures will be difficult to implement in the face of current downturn.

S&P said India's fiscal deficit is likely to rise to about 12.5 per cent of GDP this year, largely driven by much weaker revenue generation. The government's net indebtedness is set to exceed 90 per cent of GDP this year.

Deficit consolidation over the next three years is likely to be gradual. The change in net general government indebtedness will average 9.4 per cent of GDP per year.

"We believe India faces a shortfall in the provision of basic goods and services, particularly in more rural parts of the country. In our view, improvements to physical infrastructure are needed to raise the country's investment potential and competitiveness."

S&P said the high financial cost of addressing this shortfall constitutes a future liability to the sovereign. (ANI)

 
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