S&P: Second covid wave may derail India's nascent recovery


India's budding economic recovery could be threatened by the second wave of coronavirus in the country, S&P Global Ratings said on Wednesday.

Key takeaways

“The possibility the government will impose more local lockdowns may thwart what was looking like a robust rebound in corporate profits, liquidity, funding access, government revenues and banking system profitability.”

"The Indian recovery had been so vigorous across many measures, particularly in the last quarter of fiscal 2021, and yet the latest outbreak has escalated rapidly.”

"Despite being the largest vaccine manufacturer in the world, India's vaccination rollout to the country's very large and largely rural population has proven challenging."

"India's second wave has prompted us to reconsider our forecast of 11 percent GDP growth this fiscal year. The timing of the peak in cases, and subsequent rate of decline, drive our considerations.”

“S&P's moderate scenario suggests a hit to GDP of about 1.2 percentage points. This means full-year growth of 9.8 percent for fiscal 2022 (the year ending March 31, 2022). This compares with a baseline forecast of 11 percent growth for the period set in March 2021.”

“In the severe scenario, the hit is 2.8 percentage points with growth of 8.2 percent.”

“The depth of the Indian economy's deceleration will determine the hit on its sovereign credit profile. The government's fiscal position is already stretched. The general government deficit was about 14 percent of GDP in fiscal 2021 with a net debt stock of just over 90 percent of GDP.”

“Credit losses will remain high in fiscal 2022 at 2.2 percent of total loans before recovering to 1.8 percent in fiscal 2023.”

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