S&P affirms BBB- rating for India, says outlook stable

Our Bureau. New Delhi | Updated on September 25, 2020 Published on September 25, 2020

S&P Global Ratings on Friday affirmed India’s sovereign rating at BBB- with stable outlook. This is the last investment grade. Stable outlook means country the will not be downgraded immediately.

“India’s weak fiscal settings will worsen further this year, constraining the government's ability to aid the economy,” the agency said, adding that at the same time, the country’s external settings have improved, helped by the RBI’s rapid accumulation of foreign exchange reserves.

Earlier, S&P had revised its growth projection, saying the Indian economy was likely to contract 9 per cent in FY21. However, it had said there would be a sharp recovery during FY22, with the GDP projected to grow 10 per cent then. The agency reiterated its views, saying India’s economy will experience a record contraction this fiscal, largely owing to the pandemic. “We expect real GDP growth to recover from fiscal 2021 onwards,” it said.

The stable outlook, the agency said, reflects its expectation that India’s economy will recover following the resolution of the pandemic, and that the country’s strong external settings will act as a buffer against financial strains despite elevated government funding needs over the next 24 months.

“We may lower the ratings if: (1) India's economy recovers significantly slower than we expect from fiscal 2021 onwards; or (2) net general government deficits and the associated accumulation of indebtedness materially exceed our forecasts, signifying a weakening of India's institutional capacity to maintain sustainable public finances,” it said.

“We may raise the ratings if the Indian economy exhibits a stronger recovery than we expect over the next 24 months, such that the country's long-term growth outperformance is intact and its fiscal metrics dramatically improve,” it added.

According to the agency, the increasing Covid-19 case load along with strict measures aimed at containing the spread of the pandemic have hit the economy hard. Productive capacity has been severely disrupted since the start of the pandemic. “We foresee a permanent loss of approximately 13 per cent of output compared with India’s pre-pandemic trend,” it said.

Prior to the onset of the pandemic, the Indian economy had already slowed measurably. “Existing vulnerabilities, including a weakened financial sector, rigid labour markets and weak private investment could hamper the economic recovery, especially in view of the deeper downturn this year than we expected,” the agency said.

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Published on September 25, 2020
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