An ongoing second wave of COVID-19 infections in India could hurt its near-term economic recovery and possibly diminish growth for the full year, S&P Global Ratings said on Tuesday.
“India’s COVID wave will inevitably hit the recovery and could push growth below 10%,” said Shaun Roache, chief economist, Asia Pacific at S&P.
“The longer it takes to regain control, the greater the permanent damage, especially as policy space is limited.”
With 3.45 million active cases, India recorded 357,229 new infections over the last 24 hours, while deaths rose 3,449 for a toll of 222,408, health ministry data showed. Experts say actual numbers could be five to 10 times higher.
S&P currently has a “BBB-” rating on India with a stable outlook, the lowest investment grade and expects India’s economy to grow 11% in the year that started April 1 following a projected record contraction of 8% in the previous year.
“The shock of the first quarter is likely to carry on through the rest of the year and the impact on the GDP could be around one to three percentage points,” Roche said.
The rating agency said India had been showing strong recovery momentum since September last year and until March/April of 2021 before the massive surge in cases prompted localised lockdowns and mobility restrictions.
“There will be some near-term ramifications at least…from the severe second wave of COVID-19 that we are observing. But India still has good recovery prospects over the next 3-4 years but that may be slower,” Andrew Wood, director, sovereign & international public finance ratings.
He said that the agency expects India to see the best growth prospects over the medium to longer-term, relative to other regional peers at similar development levels.
“We still believe that India’s fiscal settings are going to be weak… deficits are going to be high for a long time,” Woods said.
India’s general government fiscal deficit is seen at around 11% of GDP this year against 14% last year, Wood said.
“A continuation of its recovery once the current epidemic wave eases will be critical to stabilizing the government’s fiscal and debt metrics,” he added.