India's economic movement on track, despite the virus

India's economic movement on track, despite the virus
Workers seen at a construction site in Mumbai. India's economy has not wavered much despite a surge in Covid-19 infections and Fitch Ratings have also affirmed that.Courtesy: Reuters

Ratings agencies provide assurance of strong medium-term growth outlook and solid structural buffers against any economic lags.

Amid a renewed surge in coronavirus cases across India and unprecedented global solidarity as the Covid situation unfolds, ratings agencies have sought to allay concerns that the new wave will leave a lasting trail on the Indian economy.

Fitch Ratings has affirmed India's long-term foreign-currency issuer default rating (IDR) at BBB-minus and said the surging second wave of Covid-19 will not impact the economy in the long run.

Fitch has forecast a 12.8 percent recovery in GDP in the fiscal year ending March 2022 (FY22), moderating to 5.8 per cent in FY23 from an estimated contraction of 7.5 per cent in FY21. However, a recent surge in coronavirus cases poses increasing downside risks to the FY22 outlook. "This second wave of virus cases may delay the recovery, but it is unlikely in Fitch's view to derail it."

Amid a renewed surge in coronavirus cases across India and unprecedented global solidarity as the Covid situation unfolds, ratings agencies have sought to allay concerns that the new wave will leave a lasting trail on the Indian economy.

Stepping up the battle

The assurance comes as India has stepped up its battle against the virus. Indian Foreign Secretary Harsh Vardhan Shringla clarified on Thursday that just like India had supplied essential pharmaceutical products including hydroxychloroquine, paracetamol and even Remdesivir to nations across the world in view of the pandemic last year, now those countries were coming forward to help India.

A worker carries boxes of Remdesivir injection under tight police security to keep at a storage facility. Despite the pandemic Private equity (PE) investment inflows into the Indian real estate sector stood at $1.9 billion in the first quarter of 2021.
A worker carries boxes of Remdesivir injection under tight police security to keep at a storage facility. Despite the pandemic Private equity (PE) investment inflows into the Indian real estate sector stood at $1.9 billion in the first quarter of 2021.Courtesy: ANI

Ratings agencies such as Fitch, meanwhile, remain bullish about a strong rebound in the second half of the 2021-22 fiscal year amid ongoing policy support underpinning expectations for a swift recovery. “We expect pandemic-related restrictions to remain localised and less stringent than the national lockdown imposed in 2Q20, and also note that the vaccine rollout has been stepped up,” said Fitch.

A customer walks inside a Mahindra cars showroom. Fitch said it expects the RBI to keep the policy rate stable in the coming year following 115 basis points in cuts since March 2020.
A customer walks inside a Mahindra cars showroom. Fitch said it expects the RBI to keep the policy rate stable in the coming year following 115 basis points in cuts since March 2020.Courtesy: Reuters

Investments continue to pour in

Despite the pandemic, investment inflows have continued to pour in for India.

Private equity (PE) investment inflows into the Indian real estate sector stood at $1.9 billion in the first quarter of 2021, according to property consulting firm Savills India. In the first quarter of 2020, PE investment into the sector stood at $650 million, it said. Savills said that despite the remote-working culture, commercial office assets remained the frontrunner, garnering more than half (58 per cent) share of the investment pie.

Strengthening residential sales in the middle income and affordable segments is evoking more interest from offshore investors and will materialise in commitments to this sector in the coming times, said Savills.

Strengthening residential sales in the middle income and affordable segments is evoking more interest from offshore investors and will materialise in commitments to this sector in the coming times, said Savills.

Growth outlook remains intact

Similarly, India’s rating balances a still strong medium-term growth outlook and external resilience from solid foreign-reserve buffers against lags in structural factors. Fitch said wider fiscal deficits and government plans for a gradual tapering of the deficit put greater onus on India's ability to return to high levels of GDP growth over the medium term to stabilise and bring down the debt ratio.

“We expect inflation to decline to an average of 4.4 per cent in FY22 after hovering above the Reserve Bank of India's (RBI's) 2 to 6 per cent target band for much of FY21. Price pressures have moderated even though both headline and core inflation remain near the upper end of the band,” the agency said.

Fitch also said it expects the RBI to keep the policy rate stable in the coming year following 115 basis points in cuts since March 2020.

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