S&P sees indications of strong rebound in Indian economy after Q1

S&P retains 9.5% FY22 growth projection for India

Rating agency Standard & Poor’s (S&P) on Tuesday said high-frequency indicators suggest a strong rebound during the July-September quarter after a steep contraction in activity in the previous three months on the back of a severe Covid-19 wave. 

However, it warned that domestic macro indicators remained weak, though recovering.

In its latest outlook on Asia Pacific, the agency cautioned against the impact of faster-than-expected tapering, saying it could cause capital flow risks as monetary policy in India remains highly accommodative with real interest rates in negative territory.

It expected a hike in the policy rate by the Reserve Bank of India’s monetary policy committee by 25 basis points in the current fiscal year. 

The agency retained India’s economic growth projection at 9.5 per cent for the current fiscal year, but cut it for China by 0.3 percentage points to 8 per cent for 2021 on the Evergrande crisis and regulatory actions by the country to rein in private enterprises. It should be noted that India’s base was quite low last year at a 7.3 per cent fall in GDP, whereas China’s economy expanded by 2.3 per cent in 2020. 

India’s economy grew by a record 20.1 per cent in the first quarter of the current fiscal year on the low base of a massive contraction of 24.4 per cent in the corresponding three months of the previous fiscal year. GDP was still 9.2 per cent lower than in the first quarter of 2019-20, which is in the pre-pandemic period. 

Besides, growth during April-June FY22 was 16.9 per cent lower than in the previous quarter, Q4 of FY21. S&P said households and MSMEs were most affected in the latest downturn and will slow the recovery while they repair their balance sheets.