The affirmation from S&P comes as a huge relief for the economy, which is facing a deep contraction in growth as the lockdown to prevent the spread of Covid-19 has hurt key sectors of the economy. The government has unveiled a series of measures, a Rs 20-lakh-crore package and several reform initiatives for agriculture, small businesses and public sector to nurse the economy back to health and provide relief to the vulnerable sections. The RBI has also cut rates sharply and unveiled a raft of measures to boost liquidity and help shield the economy from the global economic storm.
Though this is the lowest investment grade, financial markets may get some confidence from the S&P move. “The stable outlook reflects our expectation that India’s economy will recover following containment of the pandemic, and the country will maintain its sound net external position. The stable outlook also assumes that the government’s fiscal deficit will recede markedly following a multi-year high in fiscal year 2021,” S&P said in its report.
It said India’s economy will contract in fiscal 2021, largely owing to the impact of the pandemic. “We forecast a 5% decline in real GDP growth, which would be the worst economic performance in recent history. The global economic downturn resulting from the pandemic, along with strict domestic measures, aimed at containing the spread of the local epidemic, are hitting the economy hard, and will likely result in a significant fall in activity in the first quarter of this fiscal year,” S&P said.