S&P Global Ratings retained India’s sovereign rating as it expects the nation to outperform its global peers despite a blip this year due to the Covid-19 pandemic. The global ratings agency affirmed the long-term sovereign rating of India at ‘BBB-’ and short-term foreign and local currency credit ratings at ‘A-3’, according to its media statement. The outlook on the long-term rating remains stable.
“The stable outlook reflects our expectation that India’s economy will recover following the containment of the Covid-19 pandemic, and the country will maintain its sound net external position,” it said. This comes at a time India’s prolonged lockdown to curb the pathogen’s spread pushed the economy to what may be its first full-year contraction in more than four decades.
Earlier, Moody’s Investors Service cut India’s rating by one notch, citing policy challenges in dealing with the slowdown and the government’s worsening finances. Moody’s rating on India is now on par with S&P Global Ratings and Fitch Ratings Ltd. According to S&P, India’s real gross domestic product growth remains “above average” and the country continues to have a “sound” external profile.
It expects GDP to decline 5% in 2020-21, mainly due to the pandemic. Despite that, the country is well placed to recover better than its peers. “Even after incorporating a deep contraction this fiscal, India’s economy continues to outperform peers at a similar level of income on a 10-year, weighted average, real GDP per capita basis,” S&P said.
“However, new risks are emerging that could undermine the economy’s recovery, even beyond the containment of Covid-19.” Alongside domestic vulnerabilities, including a weakening financial sector and a fragile labor market, risks to India’s long-term growth outlook have intensified.
S&P also cautioned that India’s rating could fall if GDP growth fails to recover meaningfully from 2021. Or if the government deficits exceed the rating agency’s forecast, “signifying a weakening of India’s institutional capacity” to maintain public finances. Ratings could benefit if the government curtails its fiscal spending and reduces the country’s indebtedness, it said.