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S&P Global Ratings on Friday said that India’s sovereign credit rating would most likely be retained at the current level for the next two years even as it cautioned that the ongoing second wave of Covid-19 may knock India’s GDP growth below 10 percentage points level in fiscal year 2021-22.
Pace of growth
This international ratings agency also said that India will see a slightly faster pace of growth in the next couple of years that will support its sovereign rating.
S&P, in March this year, had forecast India’s GDP growth on a baseline scenario of 11 per cent in 2021-22. Without indicating the likelihood of which of the two scenarios playing out in India, S&P Global Ratings said that it expects India’s GDP growth in 2021-22 to fall to 9.8 per cent if the ‘moderate scenario’ were to be a reality—i.e. when seven-day average of Covid-19 infections peak in late May. In the case of downside of ‘severe scenario’—when seven-day average peaks in end-June—the Indian GDP growth is expected to go down to as low as 8.2 percentage points (2.8 percentage points cut from 11 percentage points growth forecast earlier).
Sovereign rating
Speaking at a webinar on “what a drawn-out second Covid wave means for India,” Andrew Wood, Director, sovereign and international public finance ratings, said “India’s rating remains stable on ‘BBB-’. We do not expect there to be a change in the rating level over the next two years ..of course, there are going to be some near-term ramifications on India’s economy stemming from the severe second wave of Covid-19 and that may peep into our sovereign credit metrics...,” Wood said.
S&P Global Ratings is of the view that severe Covid scenario could defer fiscal stabilisation. It estimates the Indian government’s fiscal deficit to be around 14 per cent of GDP in FY22, driving its net debt stock to just over 90 per cent of GDP. “You will have positive growth this fiscal year in all likelihood and we do have the potential for a lower rate of growth this financial year owing to the current health crisis. We would more likely see a slightly faster pace of growth in the ensuing two years,” Wood said.
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