New Delhi: Rating agency Moody’s on Friday projected an 11.5% contraction in India’s economic growth in the current fiscal year due to the coronavirus pandemic, from (-) 4% previously estimated.
“India’s credit profile is increasingly constrained by low growth, high debt burden and a weak financial system,” Moody’s said.
Indian policy-making institutions have struggled to mitigate and contain the risks exacerbated by Covid-19, the rating agency said.
Risks of deeper stresses in the Indian economy, the financial system may lead to the erosion of the fiscal force, Moody’s said.
“The mutually reinforcing risks of deeper stresses in the economy and financial system could lead to a more severe and prolonged erosion in fiscal strength, putting further pressure on the credit profile,” Moody’s said.
However, Moody’s expects India’s economic growth to rebound to 10.6% in the next fiscal year (FY22) with a strong base effect.
Moody’s forecast comes shortly after similar observations made by India Ratings, Fitch.
India’s economy is expected to contract 10.5 percent in the current fiscal year before recovering in the next financial year, Fitch Ratings said on Tuesday.
India’s gross domestic product (GDP) contracted a whopping 23.9 percent in April-June and some agencies have forecast negative growth even during the July-September quarter of the current fiscal year (April 2020-March). 2021).
“GDP should rebound strongly in 3Q20 (October-December) amid a reopening of the economy, but there are signs that the recovery has been slow and uneven,” Fitch said in its Global Economic Outlook (GEO).
It cut its GDP forecast for the current fiscal year to 10.5 percent, a large revision of (-) 5 percentage points compared to June’s GEO.
The economy, he said, will recover to 11 percent in 2021-22 in large part due to the base effect and will grow 6 percent the following year.
Separately, India Ratings and Research, the national arm of rating agency Fitch, projected a contraction of 11.8 percent in the Indian economy in fiscal year 21, compared to its previous projection of a contraction of 5.3 percent in the current fiscal year.
The Indian economy had grown 4.2 percent in fiscal year 2019-20.
It projected a contraction of 11.9 percent in the current quarter, followed by a (-) growth of 6.7 percent in the December quarter and 5.4 percent in the following three months.
According to India Ratings, GDP will rebound to 9.9 percent growth in fiscal year 22, mainly helped by a weak base in fiscal year 21. It estimated the economic loss in fiscal year 21 in ₹Rs 18.44 lakh.
In another report, Morgan Stanley projected a 5 percent contraction in the Indian economy in calendar year 2020 from 4.9 percent in 2019. However, the economy will rebound to 9.5 percent growth in 2021, he said, predicting that a V-shaped recovery in the world economy was developing faster than originally thought.
“For 2Q21, a global synchronous recovery should take hold, with all the engines of the global economy registering strong growth,” he said. “In our view, the risks include a possible aggressive lockdown in winter and uncertainty about fiscal policy.”
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