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India's Second COVID Wave Heightens Downside Risks To GDP And Credit


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India's Second COVID Wave Heightens Downside Risks To GDP And Credit

This report does not constitute a rating action.

HONG KONG (S&P Global Ratings) April 28, 2021--India's escalating second wave of COVID-19 infections is serious. In addition to the substantial loss of life and significant humanitarian concerns, S&P Global Ratings believes the outbreak poses downside risks to GDP and heightens the possibility of business disruptions. The negative credit spillovers to our rated portfolio remains limited, but the situation is fluid. The high absolute number of infections in India also presents a significant contagion risk to other geographies.


The COVID-19 second wave brings uncertainty. As daily infection cases exceed 300,000, the outbreak is putting severe pressure on the country's health infrastructure. A drawn-out COVID-19 outbreak will impede India's economic recovery. This may prompt us to revise our base-case assumption of 11% growth over fiscal 2021/2022, particularly if the government is forced to reimpose broad containment measures. The country already faces a permanent loss of output versus its pre-pandemic path, suggesting a long-term production deficit equivalent to about 10% of GDP.


Strong economic growth will be critical to sustain the government's aggressive fiscal stance put forth within India's latest national budget, and to stabilize its high debt stock relative to GDP. The pace and scale of the post-crisis recovery will have important implications for the sovereign credit rating.


Various levels of Indian government have enacted localized COVID-19 containment measures. The lockdowns disrupt daily work and related economic behavior, which could drag out the recovery of revenue and earnings of some corporates sectors. This is especially true for sectors highly sensitive to mobility, such as consumer retail and airports.


Banks continue to face a high level of systemic risk. Lenders' asset quality remains strained and credit losses will continue to hold back profitability during fiscal 2021/2022. India's speedy economic recovery right up until March 2021 has partly alleviated nonperforming loan stresses. Government measures have helped, including emergency credit guarantees for small to midsize enterprises. Also, under the state's partial guarantee program, the government promises to cover up to 20% of the first loss incurred by banks on certain bonds issued by finance companies.


Asia-Pacific is susceptible to contagion from the highly infectious COVID-19 variants present in India, given the low ratios of vaccination in the region. In the event some vaccines having limited efficacy against newer virus mutations, the countries may be exposed to further waves of COVID-19 outbreaks.

The report is available to subscribers of RatingsDirect at If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at Members of the media may request a copy of this report by contacting the media representative provided.

Primary Author:Eunice Tan, Hong Kong + 852 2533 3553;
Shaun Roache, Singapore (65) 6597-6137;
Andrew Wood, Singapore + 65 6239 6315;
Geeta Chugh, Mumbai + 912233421910;
Neel Gopalakrishnan, Singapore + 65-6239-6385;
Abhishek Dangra, FRM, Singapore + 65 6216 1121;
Secondary Author:Vishrut Rana, Singapore + 65 6216 1008;
Deepali V Seth Chhabria, Mumbai + 912233424186;
Terry E Chan, CFA, Melbourne + 61 3 9631 2174;

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