Low oil prices to benefit India
India’s economy will strongly recover following the deep contraction in this fiscal year, said S&P Global Ratings which forecasts real GDP growth at 8.5% in fiscal 2022.
But for fiscal 2021, ending 31 March 2021, the agency has revised the real GDP growth forecast to negative 5%, versus a pre-outbreak expectation of 6.5%.
The health crisis will also challenge important reform work that the government has been implementing to liberalize and energize the national economy.
“We expect the speed of India’s post-crisis recovery to have long-term implications for the sovereign credit rating (BBB-/Stable/A-3). This according to a commentary published today titled “India’s COVID-19 Recovery Will Be Key To The Sovereign Ratings,” it said on 12 June 2020.
On the positive side, India’s wide range of structural trends, including healthy demographics and competitive unit labor costs, work in its favor.
Economic reforms, if executed well, would support this outcome. With a recovery of this magnitude, India’s 10-year weighted average real GDP per capita growth will likely stay well above the average of its peers.
“We see a risk of a serious local epidemic, enduring financial and corporate distress in India, and long-lasting global economic malaise. Such risk scenarios may involve a comprehensive review of our assumptions of the sovereign,” said S&P Global Ratings credit analyst Andrew Wood.
The government’s Rs.20 trillion (US$264.8 billion) stimulus package, announced in May 2020, is a big number but direct government spending will be less than 1% of GDP.
Most of the aid will come in the form of government guarantees, and credit and liquidity support provided by the banking sector and the Reserve Bank of India.
India’s external settings continue to support our rating, owing largely to the country’s modest external debt stock, according to S&P.
As a large net importer of energy, low oil prices benefit the country’s terms of trade, likely leading to a lower current account deficit over the next few years.
India’s external position should remain stable barring a collapse in exports, a steep decline in the central bank’s foreign-exchange reserves, or a sustained rise in the current account deficit.
These factors are unlikely to change dramatically in the next 12 months.
However, pandemic-related risks, especially to India’s growth trajectory, could exert downward pressure on the rating if the post-pandemic recovery which is weaker than expected, said S&P. fiinews.com
