Moody’s Investors Service has revised the forecast for India’s GDP for calendar year 2020 upwards to a contraction of -8.9% from the previously anticipated contraction of -9.6%. Similarly, India’s GDP forecast for calendar year 2021 has been revised upwards to 8.6% from 8.1% previously projected. GDP forecasts are for calendar years.
The Indian economy had contracted a considerable 23.9% in the April-June quarter and is forecast to contract more than 10% in the fiscal year to March 2021 as a result of a prolonged and strict national lockdown due to the pandemic of coronavirus.
“The steady decline in new and active cases since September, if sustained, should allow for further easing of restrictions. Therefore, we forecast a gradual improvement in economic activity over the next few quarters,” Moody’s said.
Finance Minister Nirmala Sitharaman today cited Moody’s forecast to underline the economic recovery that is taking place in the Indian economy.
“There is a strong recovery in the economy; active cases of COVID-19 have decreased,” said the finance minister. “Several indicators show a clear recovery in the economy.”
However, Moody’s noted that the scope for additional rate cuts is limited in most emerging market countries, including India.
“We do not expect emerging market central banks to continue quantitative easing measures once the recovery strengthens. This is because emerging market central banks with credible inflation targeting regimes are very aware of the consequences. risks of losing credibility and nullifying inflation expectations associated with deficit financing, “Moody’s said.
On the global economic recovery, Moody’s said that over the next year it will largely depend on the development and distribution of a coronavirus vaccine, effective management of the pandemic as long as the virus remains a risk to public health and support of government policies.
Moody’s notes that difficulty in controlling the virus will hamper the gradual process of recovery in the short term.
However, Moody’s expects that the management of the pandemic will continue to improve over time, thus reducing the fear of contagion and allowing a steady normalization of social and economic activity. As a result, the virus is expected to become less of a macroeconomic concern during 2021 and 2022, he says.
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