S&P Affirms India's Sovereign Credit Rating At Lowest Investment Grade

Marco Green
September 28, 2020

India's worsening Covid-19 situation, along with strict measures aimed at containing spread of the pandemic, have hit the economy hard.

Consequently, the ratings were affirmed to "BBB-' long-term and 'A-3" short-term unsolicited foreign and local currency sovereign ratings.

"We may raise the ratings if the Indian economy exhibits 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 dramatically improve", it added. India was predicted to be the second worst performer with a 9-percent contraction in 2020. Stable outlook means country the will not be downgraded immediately. It also noted that Asia-Pacific's economic growth would be stimulated by trade and production, but a full recovery would also require improvement in the service sector./. The agency reiterated its views, saying India's economy will experience a record contraction this fiscal, largely owing to the pandemic. "These strengths are balanced against vulnerabilities stemming from the country's low per capita income and weak fiscal settings, including consistently elevated general government deficits and indebtedness", it added.

At the same time, the country's external settings have improved, helped by the central bank's rapid accumulation of foreign exchange reserves.

The rating agency said that India's outlook on long-term rating is stable.

Despite retaining India's credit rating at the lowest investment grade, ratings agency S&P Global warned that the Asian economy will face mounting deficit and debt levels in fiscal 2021 in the aftermath of the coronavirus crisis.

As per the agency, prior to the onset of the Covid-19 pandemic, the Indian economy had already slowed measurably.

Economic activity in India is expected to begin to normalise in fiscal 2022, resulting in real Gross Domestic Product (GDP) growth of about 10 per cent.

Last week, a finance ministry report said the government's total liabilities rose by a steep 7.1%, or Rs 6.73 lakh crore, in the April-June period to just over Rs 101.35 lakh crore, against a 0.8% increase in the previous quarter, which reflected the enormous pressure the Covid-19 pandemic exerted on official finances.

LONG-TERM OUTPERFORMER S&P said direct government expenditure under India's stimulus programme is limited to about 1.2% of GDP so far, against roughly 3% of GDP on average in other emerging markets.

The government's ability to deliver and execute additional economic reforms, especially those that spur investment and job creation, will be important for India's ability to recover from the economic slowdown, it said.

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