Relief: S&P maintains India’s credit rating with stable outlook

Amid rising economic uncertainties, rating agency Standard & Poor’s retained India’s sovereign credit rating at BBB- with stable outlook. The move will bring relief to the Narendra Modi government as Moody’s Investors Service last week downgraded the country’s sovereign rating.

“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,” the ratings agency statement said. India’s strong democratic institutions and above average real economic growth have helped it retain its sovereign rating.

S&P also said that India’s overall external position remained strong “largely owing to the economy's limited external indebtedness.” “We expect India's current account deficit to decline modestly this year, and to continue to improve over the forecast period, largely owing to its improving terms of trade on weaker oil prices," S&P said.

S&P expected a smart recovery in the country’s fiscal and macroeconomic position from 2021. The rating agency also said, “The stable outlook also assumes that the government's fiscal deficit will recede markedly following a multi-year high in fiscal year 2021 (ending March 31, 2021).”

Noting that the fiscal deficit could touch 11 per cent this year, the S&P said that the country’s rating could improve if the government managed to contain the fiscal deficit, which would then lead to lower net indebtedness.

According to S&P, India's economy in the current financial year could shrink by 5 per cent.

“India's economy will contract in fiscal 2021, largely owing to the impact of the Covid-19 pandemic. We forecast a 5 per cent decline in real GDP growth, which would be the worst economic performance in recent history,” the statement said.

However, it also said that in case India's economic growth rate fails to revive post the Covid-19, from 2021, downward pressure on the sovereign rating could appear.

The statement said that India’s productive capacity has been stunted during the first quarter due to the nationwide lockdown and this has led to migration of millions of workers.

“India's labor markets have therefore weakened dramatically, and may take some time to heal,” the statement said..