Rating agency S&P Global on Friday reaffirmed its ‘BBB-‘ long-term and 'A-3' short-term foreign and local currency sovereign credit ratings on India.
S&P Global said that India’s weak fiscal setting will worsen this year, constraining the government's ability to aid the economy.
Rating agency S&P Global on Friday reaffirmed its ‘BBB-‘ long-term and ‘A-3’ short-term foreign and local currency sovereign credit ratings on India. The global rating agency added that its outlook on the long-term rating is stable. “India’s economy will experience a record contraction in fiscal 2021 (year ending March 31, 2021), largely owing to the global COVID-19 pandemic. We expect real GDP growth to recover from fiscal 2021 onwards,” S&P Global said in a release. The ‘BBB-’ rating is the lowest investment-grade rating on the rating agency’s scale that hints that the entity has adequate capacity to meet financial commitments but has certain risks aligned with the economic condition.
S&P Global said that India’s weak fiscal setting will worsen this year, constraining the government’s ability to aid the economy. “At the same time, the country’s external settings have improved, helped by the central bank’s rapid accumulation of foreign exchange reserves,” it added. The stable outlook by S&P reflects their view that after this fiscal’s contraction the economy will recover to stabilize the country’s broader credit profile. To add to that S&P Global said that strong external settings will act as a buffer against financial strains for India despite elevated government funding needs over the next 24 months.
With the pandemic wreaking havoc for the Indian economy which witnessed one of the toughest lockdowns across the globe, S&P expects it to have resulted in a permanent loss of approximately 13% of output compared with India’s pre-pandemic trend. “We believe the pandemic has exacerbated India’s key credit weaknesses: Its historically high general government deficits and elevated debt stock,” S&P Global said. The slower economic recovery will also weaken the government’s revenue outlook for the fiscal.
The rating agency said that the central government’s “ability to deliver and execute additional economic reforms, especially those that spur investment and job creation, will be important for India’s ability to recover from the economic slowdown.” India’s rating could improve if the economic recovery comes to be stronger than anticipated over the next 24 months. However, a significant slower recovery could also push the rating lower.