India’s sovereign rating to remain at current level for 2 years: S&P

S&P Global Ratings on Friday said India’s credit rating would be retained at the current level for the next two years, and the country will see a slightly faster pace of growth in the next couple of years that will support its sovereign rating.

S&P, which had in March seen the Indian economy growing by 11 per cent in the fiscal year to March 2022, saw GDP growth rate dropping to 9.8 per cent under the ‘moderate’ scenario, where infections peak in May, and falling to as low as 8.2 per cent in ‘severe’ scenario under which caseload would peak only in late June.

Speaking at a webinar on “What A Drawn

Out Second COVID

Wave Means For India”,

S&P Global Ratings

Director (Sovereign and

Public Finance Ratings)

Andrew Wood said in the moderate downside scenario there would not be any major impact on the government's fiscal position.

There could be upside pressure on general government fiscal deficit forecast of 11 per cent as revenue generation would be weaker, but debt stock would remain roughly stable just above 90 per cent of

GDP, Wood added.

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

“India’s rating remains stable on a ‘BBB-’ rating. We do not expect there to be a change in the rating level over the next 2 years...of course, there are going to be some near term ramification on India's economy stemming from the severe second wave of Covid-19 and that may peep through into our sovereign credit metrics...,” Wood said.

S&P had last year retained India's rating at the lowest investment grade ‘BBB-’, with a stable outlook for the 13th year in a row. “We are still forecasting GDP growth at 11 per cent for the current fiscal. It is a baseline scenario with some downside risk. But if we do see the number creeping lower, most likely it will not go too far in our current downside scenario.

“You will have positive growth this fiscal year in all likelihood and we do have the potential for a lower rate of growth this financial year owing to the current health crisis. We would more likely see a slightly faster pace of growth in the ensuing two years,” Wood added. In the 'moderate' and 'severe' scenarios, S&P projected the Indian economy to grow 7.8 per cent and 9.6 per cent, respectively, in the next fiscal (2022-23).

Fitch Ratings last month said the resurgence of Covid-19 infections may delay India’s economic recovery, but won’t derail it, as it kept the sovereign rating unchanged at ‘BBB-’ with a negative outlook.