S & P slashes India’s growth predictions from 11% to 9.8%

In March 2021, Standards & Poor’s global ratings estimated India’s GDP growth at 11% for 2021-22 due to the opening up of the economy and fiscal stimulus. 

The US-based rating agency slashed the country’s gross domestic product forecast from 11% to 9.8% on Wednesday. 

It stated that in the moderate scenario, they predict a GDP hit of 1.2% for fiscal 2021-22, whereas, in a severe scenario, the GDP hit could be as high as 2.8%, leaving the projected range of GDP between 8.2% to 9.8%.

This was done because India is hit severely with the second wave of COVID, and major states are observing full or partial lockdowns. The severity of the second wave is expected to hamper the economy recovering from the last quarter of fiscal FY 20-21. 

S&P has offered a ‘BBB’ rating to India’s economic condition and further stated that the extent of the economic deceleration would determine the sovereign credit profile of the country. India’s general fiscal deficit is at 14% of the GDP in FY 2020-21, which could increase with further adverse impact on the economy, thereby thinning the government revenue. 

S&P stated that the projection was revised considering that the second wave will adversely affect private consumption leading to fewer employment opportunities and lower incomes. Also, this will affect corporate profits, liquidity, government revenues and banking industry profitability. 

Further, it stated that domestic banks are exposed to higher systematic risk. In a moderate scenario, weak loans can be as high as 12% of the gross loans. Credit losses expected to remain high at 2.2% of total loans in FY 22 and 1.8% in FY 23. 

Under the current scenario, it is predicted that the second wave cases will peak by the mid of June 21. The second wave of COVID waves might derail the recovering economy. The rates of the country’s infection have been increasing pace, which is almost 50% of the world’s COVID cases. 

For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in

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