India’s economy picking up steam, estimate recovery at 10% in FY22: S&P Global

S&P Global Ratings estimates India’s economic recovery at 10 per cent in FY22 on the back of continuous good performance by the agriculture sector, flattening of COVID-19 infection curve, pickup in government spending and the recently released budget.

India is on track with regard to its economic recovery in financial year 2021-22. Consistently good agriculture performance and flattening of Covid19 infection curve are supporting the Indian economy, S&P Global Ratings said in a release today. It observed that India’s near term prospects are positive.

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In a bid to continue on its recovery path, the global rating agency noted India needs to quickly and thoroughly vaccinate most of its 1.4 billion people. “Emergence of more contagious COVID variants with the potential to evade vaccine-derived immunity a major risk to recovery,” it said. In addition to this, possibility of early withdrawal of global fiscal stimulus also poses a major risk to India’s recovery, it further added.

Meanwhile, S&P Global Ratings also noted that India’s near term prospects are critical to its ability to sustain higher deficits. Economy still faces important risks as it transitions from stabilization to recovery. According to its estimate, India faces a permanent loss of recovery of about 10% of GDP output versus its pre-pandemic path.

“A sustained earnings rebound is key for ratings to stabilize. Estimate banking system’s weak loans ratio at 12% of gross loans and credit cost to remain elevated at 2.2%-2.7%,”S&P Global said.

The rating agency further added that the faster economic recovery, government and RBI measures cushioned the effect of crisis on bank balance sheets. It expects India’s banking system to start improving materially in FY23.