S&P optimistic of India recovery; Fitch forecasts bounceback

Amid a host of dim economic prognoses, global rating agency S&P gave a glimmer of hope on Wednesday, saying India’s economy and fiscal position will stabilise and begin to recover from 2021 onwards. It also retained the country’s sovereign rating of BBB, with a stable outlook.

Though it is the lowest investment grade, it relieves policymakers from the fear of India falling to 'junk' status at a time when other rating agencies have been downgrading the country due to COVID-19 related stress on the economy.

"While risks to India's long-term growth rate are rising, ongoing economic reforms, if executed well, should keep the country's growth rate ahead of peers,” S&P said, adding the country’s overall external position remains a credit strength, largely owing to the economy's limited external indebtedness.

Last week, Moody’s had downgraded India’s sovereign rating by one notch to the lowest investment grade with negative outlook.

Another rating agency Fitch too forecast a bounceback in India's economy with a sharp growth rate of 9.5% next year. This means a V-shaped recovery.

The pandemic has given room to economists to invent different shapes of economic recovery from Smoking Pipe, which means broad-based, to Nike-swoosh, implying gradual climb to W-shaped that is faltering in the middle. There is a Z-shaped recovery pattern too. The worst is L-shaped, where the economic growth, after falling to a certain level, does not get back to normal.

Fitch, however, warned that the pandemic has drastically weakened India’s growth outlook and laid bare the challenges caused by a high public-debt burden.

“General government debt already stood at 70% of the GDP in FY20, according to our estimate, well above the BBB median of 42%. We now expect India’s ratio of public debt/GDP to rise to 84% of GDP in FY21 — up from a forecast of 71% when we affirmed the rating in December,” it said.