S&P warns of risks, ADB ups FY22 forecast

The Asian Development Bank (ADB) on Wednesday upgraded its India growth projection for FY22 to 11% from 8% earlier, while rating agency S&P hinted at downgrading its forecast as India battles an intensifying pandemic with curbs on mobility and business.

“To contain this second wave of Covid-19, the vaccine roll-out may need to accelerate further, which would require more supply, a strengthened regulatory regime for vaccine approval, and heightened private sector participation. While containing Covid-19 is still key to economic recovery, global experience suggests that economic impacts from subsequent waves are smaller than from the first if nationwide lockdowns are avoided,” ADB said.

S&P Global Ratings cautioned that the second wave of infections heightens the possibility of business disruptions and poses serious risks to India’s economic growth, which may force it to downgrade its GDP projection for India. “As daily cases exceed 3,00,000, the outbreak is putting severe pressure on the country’s health infrastructure. A drawnout Covid-19 outbreak will impede India’s economic recovery. This may prompt us to revise our base-case assumption of 11% growth over fiscal 2021/2022, particularly if the government is forced to reimpose broad containment measures. India already faces a permanent loss of output versus its pre-pandemic path, suggesting a longterm production deficit equivalent to about 10% of GDP,” it said.

The rating agency said strong economic growth will be critical to sustaining the government’s aggressive fiscal stance put forth within India’s latest national budget, and to stabilise its high debt stock relative to GDP. “The pace and scale of post-crisis recovery will have important implications for the sovereign credit rating,” it warned.

Many states have enacted localised curbs, forcing non-essential services to shut shop. “The lockdowns disrupt daily work and related economic behaviour, which could drag out the recovery of revenue and earnings of some corporates sectors. This is especially true for sectors highly sensitive to mobility, such as consumer retail and airports,” it added. ADB said the vaccine drive and large government stimulus will help economic activity continue to recover. “Domestic demand is expected to remain the main driver of growth as the release of pent-up demand boosts private consumption, especially urban demand for services,” it added. ADB has projected inflation to moderate to 5.2% in FY22 after touching 6.2% in FY21.