Economic recovery to begin again in next quarter: S&P


S&P Global Ratings has said it expects India’s economic recovery to begin to take hold once again in the next quarter after a dip during April-June as the country would be past the peak of the resurgence in Covid-19 cases.

The upward trend in the shape of India’s recovery seen over the last two quarters from October to March would be punctuated by a dip in the first quarter of the current fiscal year “where economic activity has a decent chance of contracting,” Vishrut Rana, Asia Pacific economist at the global rating agency, said in a virtual conference on Friday.

The shape of India’s economic recovery is likely to see a double dip as disruptions caused by the second wave of Covid-19 could result in a contraction in the April-June quarter, he said. “Indeed, this is going to lead to a double dip.”

S&P maintained its baseline forecast of 11% growth this fiscal though it came out with two downside scenarios even as Fitch Solutions and SBI Research on Friday said the country’s growth may slip to single digit in FY22.

According to S&P, however, even in the event of lower growth rates this fiscal, the Indian economy would see a faster pace of growth in the coming two years, protecting its fiscal and credit metrics.

The government had earlier said India was witnessing a V-shaped recovery.

S&P’s moderate and severe downside scenarios estimated a hit of 1.2-2.8 percentage points to India’s growth, respectively, on account of the second wave of Covid-19.

“Where we do have some potential for lower rates of growth in the economy this fiscal year owing to the health crisis, then we’d be more likely to see slightly faster pace of growth in the ensuing two years,” Andrew Wood, director of Asia Pacific sovereign ratings at S&P, said in the virtual conference.

The moderate scenario, which implied FY22 growth at 9.8%, would not have much impact on the government’s fiscal settings and the sustainability of its debt stock despite implications of potentially lower revenue generation, Wood said.


Meanwhile, Fitch Solutions has revised its projection of India’s fiscal deficit to 8.3% of GDP for the current fiscal from 8% earlier. The government has targeted a deficit of 6.8%.

“The main driver of our deficit forecast revision is a downward revision to our outlook for revenues, given that the flare-up in Covid-19 cases in India and containment measures in place will hamper India’s economic recovery, which will have a negative impact on fiscal revenues,” Fitch Solutions said in a report on Friday.

The intelligence arm of Fitch forecast India’s growth at 9.5% in FY22, lower than the 10.5% growth projected by the government, and recommended increased fund allocation to healthcare and the national rural employment guarantee scheme.

Similarly, State Bank of India Research said its downwardly revised projection of 10.4% growth in the ongoing fiscal, from 11% in April, may give way to single digit growth as more states have imposed lockdowns and other restrictions.

“Since April 23, India received almost 48 lakh new Covid-19 cases and its spread has reached far with now almost each and every state imposing total/partial lockdown,” the report released Friday said. “We are now little apprehensive of a double-digit growth in FY22.”


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