Virendra Pandit
New Delhi: S&P Global Ratings on Wednesday slashed India’s GDP growth forecast for the current financial year from 11 percent to 9.8 percent fearing that the fierce second Covid-19 wave may uproot the green-shoots of pandemic-battered recovery in the economy and credit conditions.
The US-based rating agency had, in March, estimated an 11 percent GDP growth forecast for India for the new fiscal (April 2021-March 2022) on account of a fast economic reopening and fiscal stimulus.
Then the sudden outbreak of the second wave of pandemic worsened the situation and the gains made from the third quarter of FY21 began to vanish.
S&P, which currently has a ‘BBB-‘ rating on India with a stable outlook, said the depth of the Indian economy’s deceleration will determine the hit on its sovereign credit profile, according to media reports.
The Government’s fiscal position is already stretched. The general government deficit was about 14 per cent of GDP in FY21, with net debt stock of just over 90 percent of GDP.
“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,” said S&P Global Ratings Asia-Pacific chief economist Shaun Roache.
The projections assume that initial shocks to private consumption and investment filter through to the rest of the economy.
For example, lower consumption will mean less hiring, lower wages, and a second hit to consumption, it noted.