Rating agency bets on India's recovery

Rating agency bets on India's recovery



The global rating agency Standard & Poor's (S&P), on Wednesday, affirmed its 'BBB-' rating with a stable outlook. The development comes within days of Moody's downgrading India to one notch above junk status.

The ratings agency affirmed its 'BBB-' long-term and 'A-3' short-term unsolicited foreign and local currency sovereign credit ratings on India. The outlook on the long-term rating is stable.

India's rating reflects its above-average real GDP growth, sound external profile, and evolving monetary settings. India's strong democratic institutions promote policy stability and compromise, and also underpin the ratings, S&P said, explaining the rationale for its action.

These strengths are balanced against vulnerabilities stemming from the country's low per capita income and consistently elevated fiscal deficits that contribute to high general government debt, net of liquid assets. India's economy will contract in the fiscal year 2021, largely owing to the impact of the COVID-19 pandemic, it added.

'We forecast a 5.0% decline in real GDP growth, which would be the worst economic performance in recent history,' S&P said in a statement.

The global economic downturn resulting from the pandemic, along with strict domestic measures aimed at containing the spread of the local epidemic, are hitting the economy hard, and will likely result in a significant fall in activity in the first quarter of this fiscal year.

India's economy is likely to achieve a strong recovery following the deep contraction in this fiscal year; we forecast real GDP growth at 8.5% in fiscal 2022, the agency said.

Productive capacity has been severely disrupted during this period, and millions of workers have left their jobs to return home, sometimes crossing the country to do so. India's labor markets have therefore weakened dramatically, and may take some time to heal, it added.