India’s economic recovery gaining steam, S&P says

South Asia’s largest economy, India, is on track to recover from a pandemic-led contraction by next year, according to ratings agency S&P Global. It expects the economy to grow ten percent in fiscal 2022.

“Consistently good agriculture performance, a flattening of the Covid-19 infection curve, and a pickup in government spending are all supporting the economy,” the agency said in its report on Tuesday.

For the full fiscal 2021, which ends on March 31, India’s economy is expected to shrink 7.7 percent.

The speed with which the economy recovers from the coronavirus crisis will have “important implications” for the country’s sovereign credit rating, said S&P. “This includes the sustainability of the government’s strained fiscal position,” it added.

India’s deficit target for the next fiscal year is around 6.8 percent of GDP, which is higher than levels before the pandemic. S&P has estimated that India faces a permanent loss of around 10 percent of GDP output compared to its pre-pandemic path.

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The report said that near-term prospects are positive, as a declining number of new Covid-19 cases allows for a gradual relaxation of restrictive social measures. India has reported the second-highest number of cases in the world, with over 10.9 million infections.

Last month, the nation started a mass vaccination campaign, which aims to inoculate as many as 300 million people.

“We view Covid vaccinations as critical to India’s recovery over the next few years, and as key to normalizing demand,” the S&P said, warning that “The emergence of yet more contagious Covid-19 variants with the potential to evade vaccine-derived immunity [presents] a major risk to this recovery.”

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