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India is on track to an economic recovery in fiscal 2021-2022, according to S & P Global Ratings, which recently said in a report titled 'Cross-Sector Outlook: India's Escape From Covid' that consistently good agriculture performance, a flattening of the COVID-19 infection curve and a pick-up in government spending are all supporting the economy.
India needs to quickly and thoroughly vaccinate most of its 1.4 billion people for the recovery to happen, it said.
"The emergence of yet more contagious Covid-19 variants with the potential to evade vaccine-derived immunity present a major risk to this recovery. As does the possibility of early withdrawal of global fiscal stimulus," said the report.
However, near-term prospects are positive. With a sustained decline in national confirmed Covid-19 cases allowing for a gradual relaxation of formerly stringent epidemic control measures, high frequency economic indicators continue to show improvement.
S & P said the Indian government's budget will also support the recovery with higher than previously expected expenditures for fiscals 2021 and 2022.
"India's improving growth prospects are critical to its ability to sustain the higher deficits associated with its more aggressive fiscal stance," the report said.
The economy still faces important risks as it transitions from stabilisation to recovery. "We estimate that India faces a permanent loss of output versus its pre-pandemic path, suggesting a long-term production deficit equivalent to about 10 per cent of GDP," said the report.
But the pace of recovery varies widely. Airports are still struggling with most flights grounded. Utilities are faring better, bolstered by regulated, contracted or availability-based returns that protect their operating cash flows despite an earlier fall in unit demand. "We believe counterparty credit risks and receivable delays pose the biggest risk for utilities (including renewables) while benign funding conditions assuage liquidity risk."
Likewise, a faster-than-expected earnings recovery has lowered downside risk for rated corporates. An increase in commodity prices and a revival of domestic demand after lockdowns were eased have driven upside earnings surprises.
"In our view, a sustained earnings rebound is key for ratings to stabilise. Roughly one quarter of ratings are still on negative outlook. In the other hand, proactive refinancing by speculative-grade corporates has materially reduced refinancing risk in 2021," the rating agency said.
S & P said finance companies' performance has been a mixed bag and polarisation between Indian finance companies can persist, it added.
Fibre2Fashion News Desk (DS)
India is on track to an economic recovery in fiscal 2021-2022, according to S & P Global Ratings, which recently said in a report titled 'Cross-Sector Outlook: India's Escape From Covid' that consistently good agriculture performance, a flattening of the COVID-19 infection curve and a pick-up in government spending are all supporting the economy.