S&P retains FY22 growth forecast at 9.5%

NEW DELHI: S &P Global Ratings on Tuesday said there are signs of a strong rebound in economic activity in India after the second wave of the pandemic waned.

The rating agency’s vote of confidence came even as it pared China’s growth forecast, citing rising near-term uncertainty because of policy actions by Asia’s largest economy and default fears of real estate developer Evergrande.

S&P kept its growth forecast unchanged for India at 9.5% for

FY22, while it pared China’s by 30 basis points to 8% for 2021, citing rising risks. “The Apriljune period saw a steep contraction in activity on the back of a severe Covid-19 wave, but highfrequency indicators suggest a strong rebound over July-september. Households and micro and small enterprises were most affected in the latest downturn and will slow the recovery while they repair their balance sheets. Inflation remains high, and public debt worries persist,” it said.

Faster-than-expected tapering could cause capital flow risks as monetary policy in India remains accommodative with real interest rates in negative territory. “Fundamentals such as the reserve buffers and current account shortfalls are better than in 2013 when India was one of the ‘Fragile Five’ economies caught in the crosswinds of Federal Reserve tapering,” it added.

It said a spate of regulatory actions in China is weighing on both sentiment and economic activity even as private demand growth remains tepid. Over the past few months, Chinese policymakers have tightened regulations for the technology sector, gig economy, internet gaming and private tutoring. “Further uncertainty stems from property developer Evergrande... We believe Beijing would only be compelled to step in if there is a far-reaching contagion, causing multiple major developers to fail and posing systemic risks to the economy,” S&P said.