The Indian economy is set to make a recovery from the pandemic induced economic contraction by next year, said the ratings agency S&P Global Ratings on Tuesday.
The ratings agency predicted in a report that in fiscal 2022, the largest South Asian economy could expand by as much as 10 per cent. The fiscal year in India starts on April 1 and ends on March 31 of next year.
“The Indian economy is on track to recover in fiscal 2022,” the report said. “Consistently good agriculture performance, a flattening of the Covid-19 infection curve, and a pickup in government spending are all supporting the economy.”
The economic hit to the Indian economy because of the lengthy lockdown imposed to slow down the spread of the coronavirus pandemic resulted in the economy slipping to a technical recession in 2020. The number of Covid-19 cases reported from India was the second highest in the world with more than 10.9 million people being infected.
India’s economy is expected to shrink 7.7 per cent for the full fiscal 2021 which ends on March 31.
According to S&P, the sovereign credit rating of India will significantly depend on the speed at which the country’s economy manages to recover from the coronavirus crisis. “This includes the sustainability of the government’s strained fiscal position,” the report said.
The focus of the Indian government in its fiscal 2021-22 budget was greater spending which the authorities said were aimed at initiating demand and kick starting the economy to get back to a trajectory of growth.
The fiscal deficit target set by the government for fiscal 2021-22 was at 6.8 per cent of the country’s GDP which is higher than the number prior to the pandemic hit.
According to the S&P report, the ability of the Indian economy to sustain the higher levels of deficit will critically depend on the improving growth prospects of the economy even while the greater government spending will support a recovery of the economy.
The prospect of a permanent loss of about 10 per cent of its GDP output compared to its pre-pandemic levels is faced by India, estimated the ratings agency in its report.
According to S&P, a declining number of Cvoid-19 cases has allowed the government to gradually relax the restrictive social measures makes India’s near-term prospects positive.
The largest mass vaccination campaign of the world against Cvoid-19 was started by India last month with the government setting a target to inoculate as many as 300 million people in the first phase, most of whom are frontline health workers as well as individuals at high risk.
“We view Covid vaccinations as critical to India’s recovery over the next few years, and as key to normalizing demand,” the S&P report said. “The emergence of yet more contagious Covid-19 variants with the potential to evade vaccine-derived immunity present a major risk to this recovery,” it added.
Another risk to India’s path to recovery is the early withdrawal of global fiscal stimulus.
(Adapted from CNBC.com)