S&P lower’s India’s GDP growth to 9.8 % for FY 2022

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Global firm, S&P Rating Agency on Thursday lowered India’s GDP forecast to 9.8 % during the current financial year 21-22 from 11% earlier due to the second wave of Covid-19 pandemic which can obstruct promising India’s recovery in the economy.

The rating agency stated that the new infection of Covid-19 might peak in late June as per its ‘severe’ scenario, while they were at the peak in April-May month as per its ‘moderate’ scenario. It also said that considering lower vaccination drive, pandemic waves are posing risk to the outlook.

S&P outlined two scenarios that could play out because of the second wave. The first ‘moderate scenario’ suggests a hit to GDP of about 1.2 % points. This means full-year growth of 9.8 % for the fiscal year 2022 while, this would see a recovery taking hold again later in the year, it stated, adding that the hit to GDP growth will be 2.8 % points with the growth of 8.2 % in the second ‘severe scenario’.

The second wave can obstruct what has been a promising recovery in the economy, profits, and credit metrics in the year to date. The Indian recovery had been so vigorous across many measures, mainly in the last quarter of fiscal 2021, & yet the latest outbreak has risen rapidly.

Despite being the largest vaccine manufacturer in the world, India’s vaccination rollout to the country’s very large rural population has proven challenging. The Combination of a more infectious COVID-19 variant & limited vaccination reach will mean potentially higher infectious threats.

While the Central Government has avoided imposing nationwide lockdown in the second wave of Covid-19, as the scope of lockdowns affects mobility & is more indicative of the strength of India’s recovery. Much more extensive restrictions would prolong the pain of badly hit sectors, such as aviation, tourism, hospitality, and retail sector.

S&P also said that the Covid-19 wave has badly hit the small & mid-sized enterprises, & delay recovery in banks’ assets quality. While a prolonged health crisis would hurt the banks’ asset quality more adversely, may further crimp the cash inflows.

Stating that is starting to come out of the lockdown, S&P stated that a gradual revival is underway after a severe second Covid-19 outbreak in April & May led to lockdowns across much of the country & to a sharp contraction in economic activity. Manufacturing & exports were less severely affected compared to 2020, but the service sector was acutely disrupted & hampered a lot. But the economy has turned a corner now. New Covid-19 cases have been falling consistently & mobility is recovering. S&P expects this recovery to be less steep compared with the bounce in late 2020 and early 2021.

Households are running down saving buffers to support consumption and a desire to rebuild saving could hold back spending even as the economy reopens.

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