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India’s debt level to surpass 90% of GDP amid record economic contraction – S&P

Despite retaining India’s credit rating at the lowest investment grade, ratings agency S&P Global warned that the Asian economy will face mounting deficit and debt levels in fiscal 2021 in the aftermath of the coronavirus crisis.

In its forecast released earlier this week, S&P said it expects India’s debt-to-GDP ratio (the debt levels compared to gross domestic product) to surge over 17 percent from the previous year before it reaches 90.6 percent in the fiscal year to March 2021. The outlook is similar to the estimates of two other major ratings firms, with Fitch pegging general government debt to jump to 84.5 percent of GDP and Moody’s placing it at 90.1 percent.




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While S&P says the pandemic will lead to a record nine percent downturn for the Indian economy, it has not changed the country’s long-term sovereign rating so far, keeping it at BBB-. 

Despite the agency earlier warning that it would be harder for some Asian economies to recover from the crisis, the analysts believe that India can bounce back in FY22.  According to S&P predictions, the Indian economy can expand 10 percent next fiscal year due to the base effect of steep decline in 2020-2021.




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“We expect economic activity in India to begin to normalize in fiscal 2022, resulting in real GDP growth of about 10%,” it said, adding that an additional stimulus measure will help to avert a steeper downturn. 

Nine percent contraction predicted by S&P is less dramatic than other prognoses, most of which expect India’s economy to shrink in double digits in FY21 after its GDP fell by a record 23.9 percent from April to June. New Delhi-based think tank, the National Council for Applied Economic Research (NCAER), recently warned that the country’s economy may drop by 12.6 percent this fiscal year. Moody’s forecast a 11.5 percent contraction in India’s economic growth, while Fitch is just a little more optimistic, predicting a fall of 10.5 percent.

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