Economy

Ind-Ra, Fitch slash India GDP forecast further

Our Bureau New Delhi | Updated on September 08, 2020

While Ind-Ra expects contraction of 11.8%, Fitch projects 10.5%

India Ratings & Research (Ind-Ra) and its global parent company Fitch have further slashed GDP forecast for India. GDP is the sum of value of goods and services produced in a country during a particular time period.

Ind-Ra on Tuesday revised its FY-21 GDP growth forecast downward to -11.8 per cent, from earlier -5.3 per cent. Early in the day, its global parent Fitch slashed GDP forecast for the current fiscal to -10.5 per cent, from earlier projection of -5 per cent. Both agencies changed their forecast after the numbers for April-June quarter was made public by the Government on August 31.

Ind-Ra

According to the agency, the -23.9 per cent growth in April-June quarter (Q1 of FY21) is the first contraction in quarterly GDP data series which has been made available in the public domain since April-June quarter of 1997-98. The economic loss in FY21 is estimated to be ₹18.44 lakh crore . However, GDP is expected to rebound and grow at 9.9 per cent in FY22 mainly due to the weak base of FY21.

The agency estimates industry and services to contract by 24.2 per cent and 9.9 per cent respectively while agriculture is expected to grow at 3.5 per cent. Fiscal deficit for full fiscal is estimated at 8.2 per cent. One positive development is that the current account is expected to be in surplus. All these will have a positive impact on the rupee.

“The pandemic is expected to be longer than expected which means recovery will take long time,” Sunil Kumar Sinha, Principal Economist at Ind-Ra, said adding that contraction on a quarter-to-quarter basis will shrink, but all four quarters are expected to be in red.

Fitch

The global agency has forecast India’s sharpest GDP contractions in the April-June quarter. Nearly 24 per cent contraction is almost double of the agency's expectation embedded in the June Global Economic Outlook amid the imposition of one of the most stringent global nationwide lockdowns. All demand components, except government consumption, fell massively in the quarter. Private consumption lost more than 27 per cent (on quarterly basis), investment slumped 43 per cent

“GDP should rebound strongly in 3Q20 (July-September quarter) amid a re-opening of the economy, but there are signs that the recovery has been sluggish and uneven,” the agency said. The PMI balances have bounced back but they imply that the level of activity is still well below its pre-pandemic level in 3Q20. Still-depressed levels of imports, two-wheeler sales and capital goods production indicate a muted recovery in domestic spending. Multiple challenges are holding back the recovery, both in the short and medium term.

The continued spread of the virus and the imposition of sporadic shutdowns across the country depress sentiment and disrupt economic activity. The severe fall in activity has also damaged household and corporate incomes and balance sheets, amid limited fiscal support. A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers. Furthermore, high inflation has added strains to household income. “Supply-chain disruptions and excise duties increases have caused prices to rise. However, we expect inflation to slow amid weak underlying demand, an easing in supply-chain disruptions and a good monsoon,” the agency said while slashing growth forecasts and expecting the shortfall of activity relative to its pre-virus forecast to be 16 per cent by early 2022.

Published on September 08, 2020

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