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S&P Global Ratings Indicate India's Unchanged Sovereign Status Despite COVID-19

The country will go through a slightly faster pace of growth during the next 2 years, positively affecting the sovereign rating, said a top official at S&P Global Ratings.

S&P Global Ratings Indicate Indias Unchanged Sovereign Status Despite COVID-19

Sentinel Digital Desk

Delhi- India's sovereign rating of BBB will remain unchanged for the next two years despite its economy being heavily impacted by the coronavirus pandemic, according to a top official at S&P Global Ratings.

The country will go through a slightly faster pace of growth during the next 2 years, positively affecting the sovereign rating, he added.

"India's sovereign rating remains stable," said Andrew Wood, director, Asia Pacific Sovereign Ratings, S&P Global Ratings.

"We do not expect a change in rating level over the next two years. Currently, that remains the case."

"Of course, there are going to be some near-term ramifications for India's economy stemming from the severe second wave of COVID-19 and that may peep through into our sovereign-credit metrics," he said.

Maintaining India's real GDP growth forecast at 11% for this fiscal, Mr. Wood said, "It is a baseline scenario with some downside risk. But, if we do see a number creeping lower, most likely it will not go too far in our current downside scenario."

He said India will likely grow positively this fiscal year, but there is potential for the growth rate to lower due to the current health crises.

However, he said, "We would more likely see a slightly faster pace of growth in the ensuing two years."

During a webinar on the topic 'What a drawn-out second COVID wave means for India,' he said the second wave would not have any major impact on the Government of India's position in the case of a moderate downside scenario. Read more

"In the severe scenario, there could be more additional fiscal spending from the government, and revenue growth would be weaker. This would mean that the debt stock would stabilise in the next fiscal," he said.

Enormous case numbers, limited beds, and localized lockdowns aimed to slow down the spread of the virus will take a toll on retail activity and household consumption.

"Should the outbreak worsen over the coming months, or if case numbers plateau at a very high level, this would elevate risks to India's economic and fiscal recovery. This assumes that the health system faces prolonged capacity constraints," the report said.

He said that the second wave will not affect the economy as the first did.

"However, it is notable that the pandemic is more than a year old and is only getting stronger. The severity of the crisis is challenging the country's fiscal settings, which were already weak before COVID struck," according to the S&P Global report.

"Our moderate scenario suggests a hit to GDP of about 1.2 percentage points," according to the report. "This means full-year growth of 9.8% for fiscal 2022. This compares with our baseline forecast of 11% growth for the period, set in March 2021. This would see a recovery taking hold again later in the year," the report stated.

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