S&P SLASHES GDP GROWTH FORECAST TO 9.8% FOR FY22

The second pandemic wave may derail the strong recovery in the economy and credit conditions in India, according to rating agency Standard & Poor’s. Economic expansion could take a hit of 1.2 percentage points under “moderate conditions”, leading to GDP growth of 9.8 per cent in 2021-22. Under “severe conditions”, the hit could be 2.8 percentage points, resulting in GDP growth of 8.2 per cent in FY22. Its baseline growth estimate is 11 per cent for FY22.

The second pandemic wave may derail the strong recovery in the economy and credit conditions in India, according to rating agency Standard & Poor’s.

Economic expansion could take a hit of 1.2 percentage points under “moderate conditions”, leading to gross domestic product (GDP) growth of 9.8 per cent in 2021-22. Under “severe conditions”, the hit could be 2.8 percentage points, resulting in GDP growth of 8.2 per cent in FY22.

Its baseline growth estimate is 11 per cent for FY22.

The extent of the Indian economy’s deceleration will determine the hit on its sovereign credit profile, S&P said in a statement.

The country’s rate of daily new infections keeps spiralling upward, accounting for almost half the world’s cases, overwhelming the Indian health system.

S&P said the possibility the government would impose more local lockdowns might thwart what was looking like a robust rebound in corporate profits, liquidity, funding access, government revenues, and profitability in banking.

“The Indian recovery had been so vigorous across many measures, particularly in the last quarter of fiscal 2021, and yet the latest outbreak has escalated rapidly,” said S&P Global Ratings credit analyst Eunice Tan.

Despite being the largest vaccine manufacturer in the world, India’s vaccination roll-out, in relation to the country’s very large and largely rural population, has proved challenging.

The Central government has avoided rolling out another nationwide lockdown because this would be unpopular and economically costly. However, authorities have imposed local lockdowns that cover much of the country, including Mumbai, New Delhi, and Bengaluru.

The scope of lockdowns affects mobility, and is indicative of the strength of India’s recovery. The agency said in “a severe scenario” new infections may peak in late June. And, in a “moderate scenario” it posits that infections will peak this month.

The initial shocks to private consumption and investment filter through to the rest of the economy. For example, lower consumption will mean less hiring, lower wages, and a second hit to consumption.