What is the News?
Standard & Poor’s Global Credit Ratings has organized a webinar titled “What A Drawn Out Second Covid Wave Means For India”. During that, the S&P clarified that the pandemic won’t impact the ‘BBB-‘ rating of India for 2 years.
What are the key outcomes of the webinar?
- An increase in coronavirus cases in India could threaten the strong economic recovery of India.
- India’s GDP would decrease to 9.8% under a moderate scenario and 8.2% under a severe scenario based on when the wave peaks. This is in comparison with the baseline forecast of 11% growth for the period.
- India’s sovereign rating will remain unchanged at the current level of BBB- for the next two years.
- However, the pandemic will impact household consumption and retail activity due to
- Increase in Covid-19 cases,
- Limited healthcare system capacity.
- The localized lockdowns.
- The second Covid-19 wave will not have any major impact on the government’s fiscal position in a moderate downside scenario. But there could be upside pressure on the fiscal deficit as revenue generation could be weaker.
What is a Credit Rating?
- Firstly, a credit rating is a quantified assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.
- Secondly, a credit rating can be assigned to any entity that seeks to borrow money. An entity can be an individual, a corporation, a state or provincial authority, or a sovereign government.
- Thirdly, the three big Global Credit Rating Agencies are Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s(S&P).
- Fourthly, credit rating agencies in India came into existence in the late 1980s. Some credit rating agencies registered under SEBI are CRISIL, ICRA CARE, and Fitch India.
- Lastly, a higher credit rating boosts the investor’s confidence in a country. Because the higher rating will interpret low risk and higher financial stability.
What is Investment Grade Ratings?
- An investment-grade rating signifies the rating agency’s belief that the rated instrument is likely to meet its payment obligations.
- In the Indian context, debt instruments rated ‘BBB-‘ and above are classified as investment-grade ratings.
- Instruments with the ratings ‘BB+’ and below are classified as speculative-grade category ratings
- Instruments rated in the speculative grade are considered to carry materially higher risk and a higher probability of default compared to the investment grade.
Source: The Hindu