S&P keeps outlook for India’s sovereign rating stable despite Covid-19 risks to economic growth

S&P Global Ratings has said that it is not going to change its outlook for India's sovereign debt. However, economic recovery may stumble as Covid-19 infections in the country continue to break records, the rating agency warns.

“Our outlook on India's sovereign rating remains stable which suggests that we do not expect there to be change in the rating level over the next two years. Currently that does remain the case,” Andrew Wood, director at Sovereign and International Public Finance Ratings for Asia-Pacific, said as cited by Reuters. 

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The agency’s current long-term rating for India is BBB- with a steady outlook. According to Wood, the future of the country's sovereign credit rating would depend on the government's fiscal position. If it “becomes acute enough,” it may trigger “more concerns” about the sustainability of the public finances, he noted. 

India has been facing a worsening coronavirus crisis for several weeks in a row. The daily number of infections has been rising and a new peak was reached on Friday, when the country reported 414,188 new Covid-19 cases.

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Before another wave of the virus hit the country, most economists projected that India would see a rapid rebound from last year’s contraction. While analysts at S&P believe that the economic aftermath from the second wave would be less severe, it still acknowledged that it may derail once “vigorous” recovery in the economy and credit conditions.

“India's second Covid wave could knock off as much as 2.8 percentage points from GDP growth in fiscal 2022, derailing what has been a promising recovery in the economy, profits, and credit metrics in the year to date,” the ratings provider said earlier this week.  

The 2.8% lower GDP growth would come under the severe scenario, which assumes that cases would peak in late-June before starting to decline by 1% per day. That would mean that the Indian economy would expand by 8.2% instead of the previously projected 11%.

In the moderate scenario, infections are meant to reach their peak at around late-May, and then decrease at a faster pace of 2% per day. In this case, India’s GDP growth would stand at 9.8% this fiscal year, which ends in March 2022, according to S&P.

Global banks and brokerages also slashed their projections for the Indian economy amid a worsening coronavirus outbreak. Nomura cut its outlook to 12.6% from 13.5% earlier, and JPMorgan now expects GDP growth at 11% against 13% predicted previously. Meanwhile the International Monetary Fund (IMF) announced plans to revisit its forecast for India, warning that the crisis there may have spillover effects for the region.

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