BackIndia's GDP growth rate may rebound to 8.5% in next fiscal: S&P
The ratings agency affirmed 'BBB-' rating on India while keeping outlook 'stable'S&P says the proposed LIC divestment is key to India consolidating its fiscal position post FY21
PremiumStandard & Poor’s (S&P) Global Ratings on Wednesday said it sees strong recovery from India after deep contraction in FY21 and that the GDP growth in FY22 might be 8.5%.
The ratings agency affirmed 'BBB-' rating on India while keeping outlook 'stable'. It expects to maintain sound net external position and the ‘stable’ outlook assumes marked fall in India's fiscal gap post FY21.
However, S&P said weak financial sector and rigid labour markets could hamper India's recovery if not addressed.
S&P said recent reforms by Indian government suggest constructive policy-making path but lower revenues will continue to undermine India's fiscal position. The ratings agency said it's tough for the government to implement new revenue generating steps amid pandemic and it sees India's FY21 fiscal deficit at 11% of GDP.
S&P said the proposed LIC divestment is key to India consolidating its fiscal position post FY21. It expects India's fiscal gap to "fall meaningfully" in FY22 and it also expects RBI to continue to achieve its inflation target.
Apart from S&P, Fitch Ratings also expects to see Indian economy improving substantially in FY22. After a contraction in the current financial year, India's economy is forecast to bounce back with a sharp growth rate of 9.5 per cent next year provided it avoids further deterioration in financial sector health, Fitch Ratings said on Wednesday.
The coronavirus pandemic will lead to shrinking of the already slowing economy in 2020-21 that started in April. Fitch Ratings forecast a 5% contraction in the GDP in the ongoing financial year.
"The pandemic has drastically weakened India's growth outlook and laid bare the challenges caused by a high public-debt burden," Fitch Ratings said in its APAC Sovereign Credit Overview released on Wednesday.
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