(ATF) The first virus wave decimated India’s economy. Now the second threatens its credit rating.
Moody’s Investors Service has warned that the resurgent coronavirus burning though the world’s largest democracy – and the restrictions being imposed to mitigate it – could force the ratings firm to give India a credit-negative assessment.
Moody’s downgraded India’s sovereign rating to Baa3 from Baa2, citing challenges in implementing policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.
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“The (second wave) presents a risk to our growth forecast as the virus management measures will curb economic activity and could dampen market and consumer sentiment,” the agency’s analysts said in a note.
After the Indian economy contracted 10% in the first wave, the International Monetary Fund (IMF) forecast a rebound to 12.5% growth this year.
But cases are surging again; India reported 161,736 new coronavirus infections on Tuesday, hitting the world’s highest daily tally once again, after overtaking Brazil as the second-most affected country. Now that expansion estimate is in doubt as government imposes stricter lockdowns across the vast sub-continent and hospitals become overwhelmed.
Concerning
IMF chief economist Gita Gopinath said the new wave is “quite concerning”.
“People are not stepping out any more,” restaurateur Ritu Damlmia told the Financial Times from New Delhi. “There is a huge panic. This year will be a washout. How much can we survive and how long can we survive for?”
Officials in the worst-hit state of Maharashtra, home to the financial capital of Mumbai, said they were considering a broader lockdown this week after large closures at the weekend.
However, the targeted nature of containment measures instead of a nationwide lockdown and rapid progress on vaccinating the population will mitigate the credit-negative impact, Moody’s said.
GDP
India’s gross domestic product is still likely to grow in the double digits in 2021 given the low level of activity in 2020, it added.
Meanwhile, Barclays said in a note on Monday that India’s accelerated vaccination drive may limit the economic disruption caused by the resurgence of cases.
Moody’s also echoed concerns raised by Barclays that a shortage of vaccines and India’s population of nearly 1.4 billion could slow progress of the vaccine rollout.
India on Monday approved the use of Russian Sputnik V vaccine and has so far used two vaccines, one developed by AstraZeneca and Oxford University, and the other by domestic firm Bharat Biotech.
Some states, including Maharashtra and Odisha, have complained of a scarcity of vaccines during the second wave that has forced some centres to turn away people.
- Reporting by Reuters
