S&P closely watching India’s vaccination drive amid risks from new Covid-19 strains

New Delhi: Global rating agency S&P is closely watching India’s vaccination drive considering the new Covid-19 variants which could lead to a much larger second wave, said Andrew Wood, its director of sovereign and international public finance ratings.

A much larger second wave emanating from the new strains of Covid-19 would be a major risk to India’s recovery based on past examples of the significant impact similar events have had on the recovery paths of other economies, Wood said.

“We are also watching India’s vaccination campaign very closely to see how well India can mitigate the lurking risks associated with the pandemic as well as new, more transmissible and potentially resistant strains of the SARS-CoV-2 virus,” Wood said during a webinar on S&P’s India 2021 Outlook, on Wednesday.

Wood counted the Serum Institute of India, the world’s largest producer of vaccines, as an ace up the country’s sleeve since “it’s not going to have to rely upon foreign-manufactured shots, which is a major asset and differentiates India from economies around the world.”

This would be a critical component of sustaining India’s economic recovery over the medium term as keeping up growth rates would be tricky, he said.

According to Wood, medium term growth was another aspect the agency was closely watching with regard to India’s sovereign rating, currently at BBB- with a stable outlook, as “higher growth rates over the next few years are going to be critical to maintain and finance the government’s higher fiscal deficits and debt stock.”

S&P projected India’s medium term growth at 6%.

In terms of the fiscal deficit, S&P has pegged India’s combined fiscal deficit at 14.5% from the ongoing fiscal which would come down to 11.6% in the coming fiscal and proceed to below 10% in FY23, according to Wood.

“This is gradual and relatively slow fiscal consolidation given how high that fiscal deficit is,” Wood said, adding that the agency would be more concerned regarding the country’s finances if the deficit remained in double-digits over the medium term.