India's Economy In ‘Deep Trouble’, To Contract 5% This Fiscal Before Rebounding In 2021: S&P

S& P said that the downturn caused by Covid means less investment, a slower recovery, and a permanent hit to the economy that will last even after a vaccine is found.

Photo: PTI

New Delhi: Two weeks ago, S&P affirmed its ratings on India’s long-term foreign and local currency sovereign credit at the lowest investment grade and maintained a stable outlook and on Friday it said India’s economy is in deep trouble with growth expected to contract by 5 percent this fiscal. “India’s economy is in deep trouble. Difficulties in containing the virus, an anemic policy response, and underlying vulnerabilities, especially across the financial sector, are leading us to expect growth to fall by 5 percent this fiscal year before rebounding in 2021,” said S&P as reported by PTI. On June 10, S&P affirmed its ratings on India’s long-term foreign and local currency sovereign credit and said “India’s economy is likely to achieve a strong recovery following the deep contraction in this fiscal; forecasting real GDP growth at 8.5 percent” in FY22. The region’s economy is likely to shrink by 1.3 percent in 2020, but grow by 6.9 percent next fiscal, S&P said in its report titled ‘Asia-Pacific losses near $3 trillion as balance sheet recession looms’. This implies a loss nearing $3 trillion output over these two years. “Asia-Pacific has shown some success in containing Covid-19 and, by and large, responded with effective macroeconomic policies,” said Shaun Roache, chief economist for Asia-Pacific, S&P Global Ratings. “This can help cushion the blow and provide a bridge to the recovery. The recovery looks set to be weighed down by indebted balance sheets.” One risk now looming larger is yet another “balance sheet recession” in which at least one important sector of the economy — the government, firms, or households — tries to bolster its weak financial position by saving more, paying down debt, and spending less, S&P said.