The world’s fifth biggest economy, India, will rebound in 2022 following a deep contraction due to the coronavirus pandemic, S&P Global Ratings said.
According to the report, growth is expected to pick up 8.5 percent after the GDP’s five-percent contraction in the current fiscal year, which ends in March 2021.
“India’s wide range of structural trends, including healthy demographics and competitive unit labour costs, work in its favour. Economic reforms, if executed well, would support this outcome,” the rating agency said. “With a recovery of this magnitude, India’s 10-year weighted average real GDP per capita growth will likely stay well above the average of its peers.”
According to S&P, a more severe local outbreak of the disease could hit the country’s growth rate and exert downward pressure on its sovereign rating. It has warned that prolonged financial and corporate distress coupled with long-lasting global economic malaise further risk derailing India’s recovery.
“Such risk scenarios may involve a comprehensive review of our assumptions of the sovereign. Expectations for a strong rebound may change if this crisis has a more chronically debilitating effect on Indian growth than we now assume.”
Covid-19 cases in India increased after restrictions were eased earlier this month to allow business and transportation activities to resume. India is currently the fourth-most affected country globally with over 332,000 infected and more than 9,500 deaths.
The agency said that it expects India’s fiscal deficit to rise this year as the government stepped up spending to curb the spread of coronavirus.
Last month, the Indian government announced a 20 trillion-rupee ($264.8 billion) stimulus package to boost the economy in the wake of the pandemic. Most of the aid will come in the form of government guarantees, and credit and liquidity support provided by the banking sector through the Reserve Bank of India.
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According to S&P, direct government spending will be less than one percent of GDP. “India’s external settings continue to support our rating, owing largely to the country’s modest external debt stock. As a large net importer of energy, low oil prices benefit the country’s terms of trade, likely leading to a lower current account deficit over the next few years.”
The global agency currently has a BBB- rating on India’s sovereign debt. It said the nation’s economy was on a “weak footing” from the start of the crisis, with real GDP growth at an 11-year low.
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