In the first quarter of the current fiscal year, India’s gross domestic product (GDP) contracted a whopping 23.9 percent.
Fitch said India saw one of the sharpest GDP contractions in the world in the April-June quarter, but noted that growth should pick up strongly in the July-September period amid the economy reopening.
However, there are signs that the recovery has been slow and uneven, he said.
In its September Global Economic Outlook (GEO) update, Fitch said the deepest recessions occurred in India, the United Kingdom and Spain, countries that experienced particularly large shocks in daily mobility data on visits to retail and recreational venues. , and where the locks were strict. and long-term throughout 2Q20 (April-June).
He said that multiple challenges are holding back growth recovery, both in the short and medium term.
“New cases of the coronavirus continue to rise, forcing some states and territories in the union to reaffirm restrictions … The continued spread of the virus and the imposition of sporadic closures across the country depress sentiment and disrupt economic activity “Fitch said.
In addition, he noted that the severe drop in activity has also damaged income and balance sheets of households and companies, amid limited fiscal support.
Furthermore, an imminent deterioration in the quality of assets in the financial sector will halt the provision of credit amid weak bank capital reserves.
Furthermore, high inflation has added strains to household incomes and supply chain disruption and excise duty increases have caused prices to rise. It projected that inflation will slow amid weak underlying demand, easing supply chain disruption and a good monsoon.
“We have cut our GDP forecast for this fiscal year to – 10.5 percent, a large revision of – 5 percentage points) compared to June’s GEO. We expect the activity deficit relative to our pre-virus forecast to 16 percent. percent in early 2022, “Fitch said.
GDP growth is likely to be (-) 9.6 percent in July-September, (-) 4.8 percent in October-December, and 4 percent in January-March quarter this fiscal year, according to Fitch projections. .
For the next fiscal year, Fitch estimated that the Indian economy will grow 11 percent, while for 2022-21 the growth will be 6 percent.
Meanwhile, India Ratings and Research, the Indian arm of Fitch Ratings, on Tuesday revised India’s GDP growth forecast to (-) 11.8%, from (-) 5.3% earlier.
Fitch said the pandemic has become more prevalent in emerging market countries excluding China as the year progresses. Brazil, Russia and India now have some of the highest coronavirus cases in the world.
“India imposed one of the strictest lockdowns in the world in 2Q20 and domestic demand fell sharply. Limited fiscal support, the fragility of the financial system and a continued increase in virus cases are hampering a rapid normalization of activity.”
“The double-digit growth rate that we expect for 2021-2022 simply reflects the low base in 2020; we do not expect GDP to return to pre-virus levels until 1Q22 (Jan-Mar. 2022),” Fitch said.
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