S&P confirms India’s lowest investment rating for 14th consecutive year

On Tuesday, S&P Global Ratings kept India’s sovereign rating unchanged at the lowest investment rating of “BBB-” for the 14th consecutive year, and said the government’s ability to execute additional economic reforms that stimulating investment and creating jobs will be crucial for the recovery from the current economic downturn.

S&P forecast GDP growth of 9.5% in the current fiscal year that began in April and expansion of 7.8% the following year.

GDP, which rose from $ 2.87 trillion in 2019-2020 to $ 2.66 trillion the following year, is expected to rise to $ 3.96 trillion in 2024-25.

In 2019, Prime Minister Narendra Modi planned to make India a $ 5,000 billion economy and a global economic power by 2024-25.

Expecting that the economic recovery will accelerate in the second half of fiscal year 2021-2022, S&P maintained the rating outlook at stable.

“The government’s ability to implement and execute additional economic reforms, especially those that stimulate investment and job creation, will be important to India’s ability to recover from the economic downturn.

“Existing vulnerabilities, including a relatively weak financial sector, rigid labor markets and sluggish private investment, could hamper economic recovery if not addressed meaningfully,” S&P said in a statement.

S&P Global Ratings confirms its unsolicited long-term “BBB-” and “A-3” short-term sovereign ratings in foreign and local currencies on India. The outlook for the long-term rating is stable, he said.

“There is a risk that some of the damage to the real economy caused by India’s deep economic downturn last year and the most recent virus outbreak will be lasting. The implementation and acceleration of reforms keys could help address this risk over the next few years. ”

The Indian economy is gradually recovering from a deep contraction in fiscal 2021 (fiscal year ended March 31, 2021) and a second severe wave of COVID-19 that followed. The Indian economy contracted by 7.3% in 2020-2021.

“We expect real GDP growth to rebound to 9.5% in FY2022 as activity continues to normalize and progressively higher vaccination rates. The pace of India’s ambitious COVID-19 vaccination campaign will be crucial in mitigating the adverse effects of future pandemic waves, “S&P said.

GDP growth is projected at 7.8% for the next fiscal year 2022-2023.

The US-based agency said nationwide roll-out had accelerated over the past month, helped by increased domestic supply. India is one of a small group of emerging markets with extensive domestic vaccine manufacturing capabilities.

“Nonetheless, officials face great challenges in establishing broad coverage for the country’s large population, the majority of whom live in rural areas,” he added.

The agency further said the BJP-led coalition government retains a healthy majority in Lok Sabha, supporting its efforts to implement economic reforms. The central government approved three labor reform bills in fiscal year 2021 that are expected to help liberalize employment practices in the country, especially in small and medium-sized enterprises (SMEs) under 300 employees.

“State elections in 2022 will provide a measure of the popularity of the BJP in the Rajya Sabha, or upper house, following the disruptive second wave of COVID-19,” he added.

S&P said the Indian government presented a strong budget for fiscal 2022, with a 137% increase in healthcare spending and a 34% increase in capital spending, from what was originally budgeted for. last year. The budget follows comprehensive support measures implemented throughout fiscal 2021, although direct tax injections have been quite modest under this program.

“While the government’s robust spending program this year is expected to help the economy recover faster, it will also strain its fragile finances. This increasingly fragile balance could challenge India’s ability. to maintain viable public finances and balanced economic growth, if the recovery is slower than We anticipate.

“The government’s stimulus measures have relied heavily on guarantees as well as the banking sector and the RBI to support the economy and the financial sector. In the midst of the second wave of infections from March 2021, the bulk of the supportive measures have apparently been provided by the RBI.

“As before, these measures target the hardest hit individuals, micro-enterprises, SMEs and non-bank financial institutions (NBFIs), and should help contain the immediate tensions in the wider financial sector,” a- he added.

S&P said India’s budget deficit is likely to remain high in FY2022, at over 11% of GDP, amid the emerging stabilization of the economy. The government’s fiscal performance was likely affected by the severe COVID-19 situation in the first quarter of the fiscal year.

“India’s strong external indicators have strengthened on the rapid accumulation of reserves linked to an improvement in its current account flows; we expect the country to remain a net external creditor over the next three to four. years, ”he said, adding that the country’s strong external parameters act as a buffer against financial strains despite the government’s high funding needs over the next 24 months.

He said India’s strong external policies have strengthened due to a rapid build-up of reserves linked to an improvement in its current account flows; we expect the country to remain a net external creditor over the next three to four years.

“India’s sovereign credit ratings reflect the economy’s above-average real GDP growth over the long term, its strong external profile and changes in monetary parameters. India’s democratic institutions promote political stability and compromise, and underpin ratings as well.

“These strengths are offset by vulnerabilities resulting from low per capita income and weak fiscal parameters in the country, including consistently high government deficits and indebtedness,” S&P said.

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