S&P Global Ratings affirmed its 'BBB-' long-term and 'A-3' short-term unsolicited foreign and local currency sovereign ratings on India on Friday. The outlook on the long-term rating is stable. The agency expects real GDP growth to recover from FY21 onwards.
As per their report, Indian economy will experience a record contraction in FY21 (year ending March 2021), owing to the COVID-19 pandemic.
"The stable outlook reflects our expectation that India's economy will recover following the resolution of the COVID-19 pandemic, and that the country's strong external settings will act as a buffer against financial strains despite elevated government funding needs over the next 24 months," it stated.
However, slow economic growth than expected and accumulating government deficits in the upcoming months would contribute to a reduction in the rating. India must exhibit strong recovery than expected over the next 24 months to outperform its peers and eventually improve its financial metrics to keep the ratings up, clarified S&P Global.
The sovereign credit ratings represent India's above-average long-term real GDP growth, evolving monetary policy, and sound external profile. These strengths are balanced against vulnerabilities stemming from the country's low per capita income, weak fiscal settings, and consistently elevated general government deficits and indebtedness.
Indian economy faced steep downturns because of the COVID-19 pandemic. However, the agency added, "Prior to the onset of the COVID-19 pandemic, the Indian economy had already slowed measurably." The strict domestic containment measures to contain the virus in the initial months of pandemic did not help the situation.
"Existing vulnerabilities, including a weakened financial sector, rigid labour markets, and weak private investment, could hamper the economic recovery, especially in view of the deeper downturn this year than we expected," reads the report.
Nevertheless, showing a positive outlook towards the country, the rating agency wrote, "We believe the Indian economy will remain a long-term outperformer versus peers with a similar level of income."
They further added that the BJP-led coalition government may capitalise its strong support from the electorate to continue accelerating economic reforms.
First Published: Sept 25, 2020 6:37 PM IST
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