The pandemic has left a deep impact on economies across the globe, pushing the growth trajectory downwards. India has become the fourth worst affected nation in the world and exceeded the UK in terms of total COVID patient count. On a single day, India has added over 10,000 new cases of COVID. Standard & Poor’s (S&P), a rating agency has expressed that the outbreak of coronavirus in India has hit the expectation of a quicker recovery, and predicted a growth starting only by FY22. The rating agency states that India’s sovereign credit rating has also slumped, in a recent report.
S&P has held back India’s lowest investment grade (BBB-) credit rating with a stable forecast awaiting the country’s fiscal position to stabilize and commence to recover from 2021. “Risks include a serious local epidemic, enduring financial and corporate crisis in India and long-lasting global economic discomfort. Such risk situations may involve a comprehensive review of our assumptions of the sovereign. Expectations for a substantial rebound may change if this crisis has a more chronically debilitating effect on Indian growth than we now assume,” it said in a report.
S&P expects the Indian economy to substantially revive by FY22 and an 8.5% growth following its forecast of 5% contraction in the current financial year. Presently the government has started to unlock the pandemic induced restrictions in phases to revive economic activity, S&P says that revival India’s economy will require consequential coordination between public and private sectors. The nation will find it challenging to return to production after an extended period of nationwide lockdown introduced in March 2020. Economic activities are likely to progress and advance towards the end of 2020.
S&P observes that the Indian banks were already in a weak position, and being hard-hit the pandemic crisis makes the economic crunch severe. “In the interim, we expect Indian banks’ asset quality to deteriorate, credit costs to rise, and profitability to decline. Should these conditions prevail beyond fiscal 2021, continued risk aversion, particularly from the more selective private sector banks, could hinder credit growth.” This would put yet another hurdle on the journey of economic recovery, as noted by S&P analysts.