The pandemic won’t impact India’s “credit rating” for 2 years – Standard & Poor(S&P)

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


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