NEW DELHI: Rating agency Standard & Poor’s reaffirmed India’s sovereign rating at the lowest investment grade (BBB-) on Friday with a stable outlook. Asia’s third-largest economy is expected to rebound significantly from its estimated record contraction in fiscal year 21 due to the coronavirus pandemic, although worsening weak fiscal scenarios will limit the government’s ability to help the economy.
“The stable outlook reflects our expectation that the Indian economy will recover following the resolution of the COVID-19 pandemic, and that the country’s strong external configuration will act as a buffer against financial stress despite high financing needs. of the government for the next 24 months, “he said in a statement.
S&P warned that it could downgrade the ratings if India’s economy recovers significantly slower than expected in fiscal year 22 onward or if net general government deficits and associated debt accumulation substantially exceed its forecasts, meaning a weakening of India’s institutional capacity to maintain sustainable public finances.
“We can upgrade the ratings if the Indian economy shows 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 improve dramatically,” he added.
S&P said India’s sovereign credit ratings reflect long-term real GDP growth above the economy’s average, a strong external profile and an evolving currency setup. “India’s democratic institutions promote stability and policy commitment, and also support qualifications. These strengths are balanced by vulnerabilities derived from the country’s low per capita income and weak fiscal environments, including consistently high general government deficits and indebtedness, “he added.
The rating agency expects India’s GDP to contract 9% in fiscal year 21 before recovering to grow around 10% in fiscal year 22. “A significant proportion of this rally will be due to the very weak base in the current fiscal year. The long-term outperformance of the Indian economy highlights its historical resilience. The country’s wide range of structural trends, including healthy demographics and competitive unit labor costs, work in its favor. These strengths will be challenged by the spread of the pandemic, financial and corporate weakness and a prolonged decline in investments, “he added.
In June, S&P retained India’s sovereign rating after Moody’s Investors Service downgraded India’s sovereign rating one notch to the lowest investment grade with a negative outlook, while Fitch Ratings revised India’s outlook from stable to negative.
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