India’s economy is predicted to develop strongly in the next quarters, even as inflation, led by food prices, is expected to stay high, according to S&P Global Ratings.
The economy is predicted to grow by 9.5 percent this fiscal year, then by 7% the following year, according to the report, which also noted that high nominal GDP growth is critical for fiscal consolidation in the future.
“Given India’s weak fiscal policies and massive debt stock (about 90% of GDP), nominal GDP growth will be crucial to prevent further deterioration of fiscal policies and permit some fiscal flexibility. S&P Global Ratings Director (Sovereign) Andrew Wood remarked, “There will be some degree of austerity moving ahead.”
He predicted that the fiscal deficit would stay high for the next two years, but that the debt-to-GDP ratio would stabilize or flatten off. Wood went on to say that India’s external situation has improved as a result of the pandemic and that the country is producing foreign reserves at an unprecedented rate.
“Despite the fact that India’s fiscal condition has deteriorated at the same time, the country’s external position is quite strong, which is very supportive to the country’s sovereign rating,” he said.
“Looking ahead, we continue to forecast pretty strong economic growth continuing into calendar Q3 and Q4,” S&P Economist (Asia Pacific) Vishrut Rana said at the ‘India Credit Spotlight 2021′.
“The second wave of the pandemic has wreaked havoc on the economy. Households have been impacted…. Households will be fixing their balance sheets and refraining from spending, implying that activity will remain below trend once the recovery begins.”
The Indian economy grew at a rate of 20.1 percent in April-June, supported by a lower base than the previous quarter’s 1.6 percent. He stated that inflation has been near the upper end of the tolerance level, implying that the central bank will be closely monitoring inflation.
“Energies prices are expected to continue high… As a result, food will be a major component of the inflation basket. So far, monsoon rains have been below normal, perhaps leading to an increase in food prices. Overall inflation is expected to continue high, preventing the central bank from considering any easing measures, according to Rana.