S&P predicts India’s GDP to contract 9% in FY21

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S&P predicts India’s GDP to contract 9% in FY21

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S&P’s outlook –

1. India's GDP will experience a record contraction in FY21 due to the Covid crisis with some 'enduring' damage while a weakening fiscal position will constrain the government’s ability to support the economy.
2. The rating agency affirmed India’s long-term foreign and local currency sovereign credit rating at BBB- with a stable outlook and maintained its short-term rating at A-3, pointing to the country’s improved external account.
3. S&P expects the economy to contract 9% in FY21 though there will be a sharp pickup to 10% growth in FY22 due to the base effect.
4. In the absence of fiscal room, the government’s ability to bring more economic reforms, especially those that boost investment and jobs, will be critical to recovery prospects.
5. The government had announced a Rs 20 lakh crore revival package in May to address the fallout of the pandemic, but fiscal support was seen at less than Rs 2 lakh crore.
6. Although additional stimulus may help to avert a steeper downturn this year, it would also further strain the government’s weak finances.
7. The near-term fiscal impulse to the economy is limited, and some damage to the real economy from India’s deep economic downturn this year could be enduring.

Long-term outperformer – 

1. S&P said direct government expenditure under India’s stimulus programme is limited to about 1.2% of GDP so far, against roughly 3% of GDP on average in other emerging markets.
2. The Indian economy will remain a long-term outperformer versus peers with a similar level of income, S&P said, pointing to its strength in demographics and low labour costs.
3. The government’s overwhelming majority in Parliament may help accelerate economic reforms.

Rating Outlook – 

1. The stable outlook reflects our view that India’s contraction in fiscal 2021 will be followed by a significant recovery, which will stabilise the country’s broader credit profile.

The outlook was underpinned by India’s above-average, long term real GDP growth, sound external profile, and policy stability.

Read more on - Polity | Economy | Schemes | S&T | Environment

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