S&P forecasts 11% growth for India this fiscal, flags impact of lockdowns

S&P Global Ratings on Thursday said the Indian economy is projected to grow at 11 per cent in the current fiscal, but flagged the "substantial" impact of broader lockdowns on the economy.

In its report on Asia-Pacific Financial Institutions, S&P said the control of COVID-19 remains a key risk for the economy. New infections have spiked in recent weeks and the country is in the middle of a second pandemic wave.

"Our forecast growth of 11 per cent for India in 2021 is followed by a 6.1 per cent-6.4 per cent forecast increase for the next couple of years... Some targeted lockdowns have already been implemented and more will likely be needed. The impact of broader lockdowns on the economy could be substantial, depending on their length and scope," it said.

S&P, which currently has a 'BBB-' rating on India with a stable outlook, has forecast an 11 per cent growth in the Indian GDP for the fiscal beginning April 1 on account of a fast economic reopening and fiscal stimulus.

As per official estimates, the Indian economy contracted 8 per cent in 2020-21 fiscal, which ended March 31, 2021.

Last week, another global rating agency Moody's Investors Service had said the second wave of COVID infections presents a risk to India's growth forecast, but double-digit GDP growth is likely in 2021 given the low level of activity last year.

India is in the middle of the second wave of COVID pandemic and has witnessed over 3.14 lakh new infections and 2,104 deaths on Wednesday.

Active COVID cases in the country stand at over 22.91 lakh.

In the report, S&P said credit conditions have improved for Asia-Pacific banks over the past quarter.

Economies are recovering smartly, countries are rolling out vaccinations, and regional financing circumstances remain supportive. And yet, the pandemic has so seriously set back the finances of households and corporates, with deeply negative effects on lenders, S&P said. It expects banks may need years to fully recover.

Public authorities across Asia-Pacific have blunted the economic effects of COVID-19. This includes an unprecedented level of fiscal and monetary policy support for households and corporates and measures to encourage banks to lend and show forbearance toward stressed borrowers.

But for this support, the hit on the Asia-Pacific financial institutions would have been much more significant.

"Public authorities will likely continue to have a key effect on banking sector creditworthiness over the next six to 18 months. They must maintain a delicate balancing act of not withdrawing support too early or, alternatively, not overshooting," S&P added.